UC-NRLF 


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REPORT  OF  SPECIAL  COMMITTEE 

ON 

GOVERNMENT  OWNERSHIP  AND 
OPERATION  OF  PUBLIC  UTILITIES 


January  23,  1919 


GIFT   OF 


*  Asanriatton 
of  5faw  f  0rk 


REPORT  OF  SPECIAL  COMMITTEE 

ON 

GOVERNMENT  OWNERSHIP  AND 
OPERATION  OF  PUBLIC  UTILITIES 

LIBRARY  OF  CONGRESS  CARD  A19-178 


January  23,  1919 


,£° 


• 


THE  Board  of  Directors  of  the  Merchants'  Association 
of  New  York,  at  a  meeting  held  January  23d,  1919, 
considered,  and  by  unanimous  vote  approved  the  fol- 
lowing report  from  the  Special  Committee  on  Government 
Ownership  and  Operation  of  Public  Utilities,  and  adopted  the 
following  preambles  and  resolutions : 

Whereas:     This  Board  at  its  meeting  Nov.  15,  1916,  adopted 
the  following  preambles  and  resolutions : 

Whereas,  The  Newlands  Commission,  created  by  Senate  Joint  ^Resolution 
No.  60,  is  about  to  investigate,  among  other  things,  ' '  the  comparative 
worth  and  efficiency  of  governmental  regulation  and  control  [of  public 
utilities]  as  compared  with  governmental  ownership  and  operation " 
and 

Whereas,  The  fundamental  principles  of  our  form  of  government  require; 

That  the  members  of  legislative  bodies  and  all  principal  executive 
officials  be  periodically  subject  to  change; 

That  the  number  of  members  of  legislative  bodies  be  large  and 
that  representation  be  sectional; 

That  legislative  bodies,  by  means  of  laws  passed  by  them,  direct 
and  control  in  minute  details  the  acts  of  executive  officials; 

That  the  discretionary  power  of  such  officials  be  restricted  to  the 
narrowest  possible  limits; 

That  no  outlays  of  public  monies  be  made  except  as  expressly 
authorized  by  law;  and 

Whereas,  By  reason  of  these  conditions  inseparable  from  our  form  of  gov- 
ernment, governmental  operation  of  economic  undertakings,  whether 
Federal,  State  of  Municipal,  is  characterized  by: 

Extreme  delay  and  inertia,  vacillation,  hesitancy  and  inconsistency 
in  matters  of  policy; 

Wasteful  outlays  in  response  to  sectional  demands; 


395 


;t)?7 


Insufficient  provision  of  funds  when  needed  for  necessary  purposes ; 

Absence  of  close  and  harmonious  co-operation  between  the  legis 
lative  directorate  and  the  executive  officials; 

Insecurity  of  tenure  in  the  higher  places  and  lack  of  self -interest 
as  an  incentive; 

Frequent  change  of  higher  officials  and  the  injection  into  office 
of  new  and  untried  men; 

Unsuitable  methods  of  selecting  executive  officials  whereby  such 
officials  are  not  often  properly  qualified  by  expert  knowledge,  previ- 
ous training,  experience  or  proved  capacity; 

Hampering  conditions  imposed  by  law  upon  executives  whereby 
they  are  deprived  of  necessary  control  of  operation  and  of  their 
subordinates;  and 

Whereas,  From  these  conditions  naturally  result  imperfect  co-ordination, 
lack  of  qualified  management,  bad  operating  methods,  and  general 
waste  and  inefficiency;  both  the  methods  and  the  results  being  dia- 
metrically opposite  to  those  which  prevail  in  properly  managed  business 
undertakings,  which  latter  are  governed  solely  by  economic  considera- 
tions, and  require  for  their  success  close  and  friendly  relations  between 
the  directorate  and  the  officials;  the  prompt  provision  of  funds  as 
required  by  the  economic  needs  of  the  business;  high  capacity,  long 
experience  and  special  training  on  the  part  of  the  executive  officials, 
assured  tenure  during  efficiency,  self-interest,  and  the  possession  by 
such  officials  of  a  very  large  degree  of  discretion  as  to  outlays  and 
operating  details;  Now,  therefore,  be  it 

Eesolved,  By  The  Merchants'  Association  of  New  York  that  governmental 
methods  in  the  conduct  of  business  affairs  are  inherently  defective  by 
reason  of  the  fundamental  restrictions  imposed  by  our  form  of  govern- 
ment; and  that  such  methods  are  often  inefficient  and  wasteful  and 
therefore  unsuited  to  the  conduct  of  business  undertakings;  And  be  it 
further 

Eesolved,  That  The  Merchants'  Association  of  New  York  is  opposed  to 
government  ownership  and  operation  of  railroads,  telephones,  tele- 
graphs, and  other  public  utilities,  believing  that  such  utilities  are  far 
more  effectively  operated  under  private  ownership,  subject  to  public 
regulation,  than  would  be  possible  under  governmental  ownership  and 
operation,  and  that  it  would  be  a  national  calamity  to  subject  these 
instruments,  indispensable  to  the  welfare  of  the  whole  country  to  the 
hampering,  inefficient  and  wasteful  methods  inseparable  from  govern- 
mental undertakings. 

and, 


Whereas:  This  Board  later  appointed  a  Special  Committee 
to  review  the  question  of  government  ownership  and 
operation  of  public  utilities,  particularly  with  reference 
to  new  conditions  arising  from  the  war;  and  to  report 
whether  or  not  such  new  conditions  justify  and  require 
a  modification  of  the  Association's  previous  policy  of 
opposition  to  the  undertaking  by  governmental  agencies 
of  economic  activities;  and 

Whereas:  Such  Special  Committee,  after  a  careful  and  de- 
tailed study  of  the  subject,  has  reported  that  it  does  not 
find  any  changes  of  conditions,  resulting  from  the  war 
which  warrant  or  require  the  previous  position  of  the 
Association,  in  opposition  to  government  ownership  and 
operation,  to  be  modified;  Therefore  Be  It 

Resolved:  That  the  report  of  the  Association's  Special  Com- 
mittee, dated  January  n,  1919,  be  and  hereby  is  ap- 
proved and  its  recommendations  adopted ;  and  Be  It  Fur- 
ther 

Resolved:  That  The  Merchants'  Association  of  New  York 
reaffirms  its  resolutions  of  November  15,  1916,  (cited 
above)  opposing  government  ownership  and  operation  of 
public  utilities. 

New  York,  January  23,  1919. 

S.  C.  MEAD, 

Secretary. 


REPORT 

BY 

SPECIAL  COMMITTEE  ON  GOVERNMENT  OWNER- 
SHIP AND  OPERATION  OF  PUBLIC  UTILITIES 

JANUARY  n,  1919. 

» 
To  the  Board  of  Directors, 

The  Merchants'  Association  of  New  York. 

THIS  Committee  has  been  requested  to  review  the  ques- 
tion of  government  ownership  and  operation  of  public 
utilities,  particularly  with  reference  to  new  conditions 
arising  from  the  war;  and  report  whether  or  not  in  our  opin- 
ion such  new  conditions  justify  and  require  a  modification  of 
the  Association's  previous  policy  of  opposition  to  the  under- 
taking by  governmental  agencies  of  economic  activities. 

The  Federal  Government  by  virtue  of  war  powers  delegated 
by  Congress  to  the  President  has  taken  possession  of  and  is 
now  operating 

All  steam  railroads 

All  express  service 

Many  coastwise  steamships 

The  Cape  Cod  Canal 

The  Erie  Canal  and  all  other  canals  in  the  States  of 

New  York  and  New  Jersey 
All  telegraph  service 

All  telephone  service  except  farmers'  lines 
The  ocean  cable  service. 


A  resolution  now  pending  in  Congress  proposes  the  perma- 
nent retention  and  operation  by  the  Federal  Government  of 
these  utilities,  and  also  practical  domination  by  the  Govern- 
ment of  the  ocean-carrying  trade  (so  far  as  American  ships 
are  concerned),  through  government  ownership  and  operation 
of  shipping;  and  further  proposes  government  ownership  of 
the  sources  of  coal  and  oil,  and  distribution  by  the  Govern- 
ment of  those  natural  products. 

Movements  for  state  or  municipal  ownership  and  opera- 
tion of  local  public  utilities  are  in  progress  in  various  quarters. 
These  in  general  contemplate  the  ownership  and  operation  by' 
municipalities  of  street  railways,  electric  light  and  power 
plants,  gas  plants  and  telephone  plants. 

Thus  it  is  proposed  that  private  enterprises  be  excluded 
from  the  fields  of  transportation,  communication,  light,  heat, 
and  power,  and  that  the  functions  belonging  to  those  fields 
hereafter  be  performed  by  immediate  governmental  agencies. 

Except  under  war  conditions  the  sole  plea  that  can  be  ad- 
vanced to  justify  the  operation  by  governments  of  public 
utilities  is  that  governments  can  provide  better  service  at  less 
cost  to  the  public  than  can  private  operators — that  is  to  say, 
the  assumption  that  government  operation  is  more  efficient 
and  less  costly  than  private  operation. 

We  do  not  believe  that  this  contention  can  be  sustained. 
On  the  contrary  we  contend  that  the  operations  of  govern- 
ments in  the  economic  field — and  particularly  under  American 
conditions — are  generally  characterized  by  inefficient  manage- 
ment and  excessive  cost;  so  that  under  government  operation 
the  public  would  get  poorer  service  and  pay  more  for  it  than 
under  private  operation  suitably  regulated  by  public  authority. 

The  cause  of  inefficient  management  and  excessive  cost 
when  governments  undertake  economic  activities  is  simple. 
All  the  activities  of  any  government  are  necessarily  carried 

cS 


on  by  political  machinery  and  that  machinery  is  wholly  un- 
suited  to  the  economic  field. 

The  fields  of  politics  and  economics  are  dissimilar  and  sep- 
arate. The  field  of  politics  (meaning  thereby  the  art  of 
government)  is  mainly  the  regulation  of  conduct  and  the  pro- 
tection of  rights.  The  field  of  economics  is  the  production 
and  utilization  of  material  things.  The  principles,  the  methods 
and  the  machinery  of  political  administration  are  wholly  dif- 
ferent from  those  of  economic  activities  and  not  adapted  nor 
adaptable  to  the  latter.  The  differences  are  fundamental  and 
cannot  be  reconciled.  When,  therefore,  the  machinery  of 
political  action  is  applied  to  economic  undertakings  it  works 
badly  and  makes  impossible  the  perfect  co-ordination  which 
can  alone,  in  the  economic  field,  produce  efficiency  and 
economy  of  operation.  A  brief  comparison  of  the  machinery 
of  business  with  that  of  political  action,  will  show  clearly  why 
political  machinery  does  not  and  cannot  work  effectively  in 
the  field  of  economics. 


POLITICAL   SELECTION   PRODUCES   A    PERSONNEL 
POORLY  QUALIFIED  FOR  ECONOMIC  SERVICE. 

THE  success  of  any  economic  undertaking  depends  in 
very  large  degree  upon  the  ability  and  skill,  the  zeal 
and  energy,  and  the  soundness  of  judgment  of  the 
human  agents  employed  therein.  Ability  and  skill  in  a  par- 
ticular field  are  the  products  of  special  and  usually  prolonged 
training;  by  far  the  most  powerful  motive  of  zeal  and  energy 
in  the  ordinary  affairs  of  the  world  is  self-interest  as  under- 
stood in  its  widest  meaning;  and  intimate  knowledge  derived 
from  experience  is  essential  to  sound  judgment  in  business 
affairs.  Every  large  business  concern  seeks  to  embody  in  its 
management  and  working  organization 


Intimate  knowledge 
Long  experience 
Sound   judgment 
Special  ability  and  skill 
Zeal  and  energy. 

Having  secured  these  qualities  it  seeks  to  retain  and  expand 
them  by  making  the  self-interest  and  ambition  of  officials  and 
employees  a  dominant  motive  for  loyal  devotion  to  the  welfare 
of  the  business.  The  motive  of  self-interest  and  ambition  is 
brought  into  play  by  the  free  opportunity  of  advancement 
always  open  to  special  ability  and  zeal,  and  by  the  assurance 
of  permanent  tenure  to  those  who  are  efficient. 

These  requisites  are  always  lacking  in  a  considerable  degree, 
and  often  entirely,  in  an  organization  created  by  political 
methods  to  perform  an  economic  function. 

No  business,  whether  public  or  private,  can  be  operated  effi- 
ciently and  without  great  waste,  under  the  constant  injection 
at  the  top  of  new,  untried  and  often  unfit  executives  and  man- 
agers; nor  with  the  rank  and  file  deprived,  by  lack  of  oppor- 
tunity for  advancement,  of  the  incentive  to  zeal  and  energy. 

Frequent  change  and  unfitness  in  the  higher  ranks,  and  lack 
of  opportunity  and  zeal  in  the  lower  ranks  are  dominant  and 
inevitable  features  of  political  management.  Political  ex- 
pediency is  nearly  always  the  determining  consideration  in 
appointments  to  the  higher  places.  Those  places  are  the  re- 
wards of  political  service;  and  the  appointees,  while  perhaps 
proficient  politicians,  are  seldom  proficient  business  executives. 
Their  immediate  subordinates  are  likewise  appointed  for  politi- 
cal reasons,  and  fitness  is  a  secondary  consideration. 

Thus  the  executives  of  a  purely  business  function  under 
political  control  are  often  without  business  experience  or  ca- 
pacity; they  are  usually  without  the  long  experience,  the  inti- 

10 


mate  knowledge,  and  the  special  ability  and  skill  indispensable 
to  highly  efficient  administration;  and  their  official  acts  are 
often  directed  by  political  motives  opposed  to  the  proper  con- 
duct of  the  business  undertaking. 

These  initial  defects  due  to  political  methods  of  selection 
and  inseparable  from  political  control,  are  magnified  and  per- 
petuated by  the  changes  which  follow  every  election.  Because 
of  these  frequent  changes,  executive  officials  seldom  remain 
in  office  long  enough  to  acquire  the  experience  and  learn  the 
sound  methods  necessary  to  efficiency  and  economy.  At  fre- 
quent intervals  the  executive  heads  are  all,  or  nearly  all,  sup- 
planted by  new  appointees,  likewise  without  the  qualifications 
necessary  to  fitness;  and  whatever  progress  toward  sound  ad- 
ministration may  have  been  recently  made  is  likely  to  be  nulli- 
fied by  changes  in  methods  which  almost  always  follow  changes 
in  officials. 

Lack  of  opportunity  in  the  lower  ranks  of  the  public  service 
has  a  deadening  influence  upon  the  the  zeal  and  energy  of  the 
entire  body  of  minor  officials  and  the  clerical  staff.  The  higher 
offices  with  their  larger  salaries,  being  usually  bestowed  as 
rewards  for  political  services,  are  seldom  open  to  minor  offi- 
cials and  clerks,  however  capable,  and  however  meritorious 
their  services.  Therefore,  they  cannot  rise  beyond  a  modest 
minor  position.  As  there  is  little  opportunity  to  rise,  and 
therefore  no  sufficient  reward  for  ability  and  initiative,  for 
exceptional  diligence,  application  and  devotion  to  duty,  the 
motive  of  self-interest  and  ambition  is  destroyed,  and  only  the 
minimum  of  service  is  given. 

The  conditions  of  incompetent  administration  at  the  head, 
and  perfunctory  service  in  the  lower  ranks,  is  fatal  to  eco- 
nomic efficiency.  The  administrative  heads,  knowing  little  of 
the  business,  are  not  capable  of  devising  and  installing  really 
efficient  methods.  They  are  therefore  content  to  let  the  old 

ii 


methods  continue  as  the  easiest  way  of  getting  along.  The 
lower  officials  have  neither  the  incentive  nor  the  power  to 
depart  from  methods  in  which  they  have  long  been  trained 
and  to  which  they  have  become  wedded  by  long  usage;  in 
fact,  any  attempt  at  change  is  usually  resented  and  resisted. 

Hence  the  business  proceeds  almost  wholly  by  force  of 
long-entrenched  routine,  impervious  and  hostile  to  new 
methods,  ignorant  or  unregardful  of  waste  and  inertia,  hating 
reform,  and  deadly  to  the  spirit  of  progress  and  efficiency. 

We  have,  then,  at  the  top  incompetent,  temporary  and  fre- 
quently changed  managing  officials  with  an  imperfect  knowl- 
edge of  their  duties  and  without  the  training  necessary  to 
efficient  management;  frequent  disorganization  of  the  ma- 
chinery by  the  injection  of  new  and  relatively  incompetent 
men ;  and  at  the  bottom  a  group  of  minor  employees,  without 
the  opportunity  for  advancement  which  supplies  the  principal 
motive  for  zeal  and  energy.  These  are  the  conditions  which 
dominate  the  public  service  and  which  make  a  high  degree  of 
efficiency  impossible,  particularly  when  applied  to  economic 
undertakings  where  perfect  and  continuous  co-ordination,  ex- 
perience and  thorough  knowledge  are  essential  to  effectiveness 
and  economy. 

In  the  case  of  private  operation  we  find  continuously  brought 
into  play  the  qualities  and  the  conditions  which  tend  to  maxi- 
mum business  'efficiency — experience,  knowledge,  special 
training,  and  the  zeal  arising  from  opportunity  and  self- 
interest. 

On  the  other  hand,  in  the  case  of  public  operation  we  find 
these  essential  qualities  largely  excluded,  through  the  working 
of  a  principle  of  political  selection  suited  to  and  inseparable 
from  political  action,  but  wholly  unsuited  and  repugnant  to 
business  action,  and  tending  greatly  to  impair  efficiency  and 
economy  in  its  performance. 

12 


Thus  because  of  the  unsuitable  principle  of  selection  applied 
to  business  functions  under  public  operation,  and  the  frequent 
and  constant  changes  in  officials,  the  personnel  selected  by 
political  methods  is  inevitably  inferior  to  that  selected  by 
business  methods. 

The  conditions  that  produce  this  result  cannot  be  changed 
so  long  as  popular  choice  and  frequent  change  of  officials  re- 
main fundamentals  of  our  political  system. 

It  is  true  that  government  operation  of  public  utilities  was 
measurably  successful  in  Germany.  But  the  very  reasons 
which,  under  the  German  system  and  being  given  the  men- 
tality and  traditions  of  the  German  people,  made  it  fairly  suc- 
cessful in  that  country,  are  the  reasons  why  under  our  form  of 
government,  and  with  the  spirit  and  traditions  of  the  Amer- 
ican people,  government  ownership  or  operation  would  be 
bound  to  prove  a  failure  and  a  grave  social  and  economic 
detriment  to  the  country. 

It  should  be  understood  that  all  that  is  being  said  in  this 
report  on  the  subject  of  government  ownership  or  operation 
of  public  utilities  is  based  upon  the  conditions  which  exist  in 
America  and  which,  at  least  in  part,  are  necessarily  incident 
to  a  government  under  free  institutions. 


DISABILITIES     OF     EXECUTIVE    OFFICIALS    UNDER 
GOVERNMENT  CONTROL. 

Y  reason  of  the  defective  personnel  arising  from  the 
causes  set  forth  above,  even  an  able  executive  could 
not  conduct  a  business  with  high  efficiency. 
There  are  numerous  other  causes  of  disability  from  which 
those  having  direction  of  a  business  undertaking  under  gov- 
ernment operation  cannot  escape  and  which  make  a  high  stand- 
ard of  efficiency  impossible. 

13 


The  managing  official  of  a  government  undertaking  is  in- 
variably hampered  by  undue  and  severe  limitation  of  his  dis- 
cretion. He  can  do  only  those  things  which  he  is  expressly 
authorized  by  law  to  do ;  he  cannot  exercise  any  power  outside 
the  limits  prescribed  by  the  law  and  is,  therefore,  to  a  large 
degree  deprived  of  the  power  of  initiative,  a  quality  indis- 
pensable to  high  executive  efficiency  in  business  matters. 

The  successful  management  of  any  large  business  undertak- 
ing requires  that  the  utmost  freedom  of  action  be  granted  to 
the  executive.  It  is  assumed  as  a  condition  of  his  employment 
that  his  experience,  training  and  special  skill  will  enable  him 
to  exercise  a  wide  discretion  so  wisely  as  to  promote  the  wel- 
fare of  the  business.  The  check  upon  him  is  mainly  his  sense 
of  responsibility  for  desirable  results,  and  he  is  commonly  left 
free,  whenever  circumstances  require,  to  take  such  action, 
within  the  general  policy  of  the  business,  as  his  judgment 
dictates.  Hence  his  initiative  is  given  full  play  and  he  is 
enabled,  whenever  occasion  requires  quick  action,  to  do  what- 
ever is  necessary  to  be  done. 

A  political  appointee,  on  the  contrary,  even  when  the  need 
for  action  is  immediate,  can  seldom  move  without  special 
authorization,  and  such  authorization  is  often,  even  frequently, 
a  matter  of  many  months,  and  sometimes  of  years,  during 
which  time  the  interests  of  the  business  undertaking  may  suffer 
severely  by  inability  of  the  executive  to  apply  needed  reme- 
dies. A  case  in  point  is  the  present  condition  of  New  York 
Harbor.  Our  commerce  is  suffering  severely  for  lack  of  press- 
ingly-needed  new  piers.  The  Dock  Commissioner  has  re- 
peatedly made  urgent  representations  but  his  initiative  has 
been  paralyzed  by  the  inertia  of  the  controlling  Board. 

Such  an  executive  has  no  sufficient  control  of  the  organiza- 
tion under  him.  He  cannot  control  appointments  (except  of 
his  immediate  subordinates  and  not  always  those),  nor 

14 


methods  of  operation.  His  organization  is  frequently  divided 
by  law  into  rigidly  fixed  Bureaus,  with  prescribed  procedure 
which  cannot  be  materially  varied  from.  He  is  obliged  to 
take  the  personnel  which  is  handed  him,  however  low  its  stand- 
ards of  performance  and  however  rigid  and  inelastic  the 
methods.  He  cannot  fix  salaries  nor  use  his  discretion  in  the 
promotion  of  deserving  subordinates  and  the  placing  of  men 
in  the  positions  best  suited  to  their  capacities.  Nor  has  he 
necessary  power  as  to  outlays.  The  funds  needed  for  effective 
operation  are  usually  limited  by  budget  allowances  based  upon 
estimates  made  long  previously,  before  the  actual  needs  are 
fully  known.  Even  in  the  first  instance,  appropriating  bodies 
are  extremely  reluctant  to  grant  the  full  demands  which  the 
executive  thinks  necessary  to  the  proper  conduct  of  the  busi- 
ness; and  are  still  more  reluctant,  in  case  of  an  insufficiency  of 
funds,  to  make  additional  appropriations,  without  which  the 
function  cannot  effectively  be  performed.  Hence  the  execu- 
tive is  unable  promptly  to  do  that  without  which  the  business 
must  suffer. 

These  conditions  do  not  prevail  in  well-managed  private 
business  undertakings.  The  executive  practically  always  has 
granted  him  all  the  discretion  necessary  to  enable  him  to  select 
and  maintain  a  fully  efficient  personnel.  He  also  has  a  large 
and  usually  controlling  influence  in  promptly  obtaining  what- 
ever funds  will  conduce  to  the  effective  and  economical  con- 
duct of  the  business. 

For  the  reasons  cited,  executive  officials  under  government 
control  are  precluded  from  full  efficiency,  and  the  business  is 
subjected  to  the  ineconomy,  the  waste,  and  the  absolute  loss 
which  is  inseparable  from  inertia  and  delay  in  business  under- 
takings, where  promptitude  and  immediate  outlay  are  neces- 
sary. 


REASONS  WHY  THE  FINANCIAL  NEEDS  OF  A  PUBLIC 
BUSINESS  UNDERTAKING  ARE  USUALLY  NOT 
PROMPTLY  OR  SUFFICIENTLY  MET. 

IN  the  case  of  a  business  undertaking  under  private  control 
and  good  management,  funds  for  improvements  which 
will  conduce  to  economy  are  promptly  provided. 

In  the  case  of  public  operation,  the  pleas  of  executive  offi- 
cials are  seldom  considered  upon  their  merits  alone.  Fre- 
quently the  most  convincing  demonstration  of  the  soundness 
of  the  proposed  outlay  fails  to  secure  the  much-needed  appro- 
priation. The  appropriating  bodies  are  compelled  always  to 
regard  the  tax  rate  and  its  effect  upon  voters.  The  total 
amount  at  their  disposal  is,  therefore,  restricted  by  this  para- 
mount political  consideration.  The  aggregate  amount  must 
be  apportioned  among  the  various  departments  with  reference 
to  their  respective  needs,  and  those  outlays  always  include  a 
considerable  number  of  superfluous  and  extravagant  factors 
which  cannot  be  dispensed  with,  for  political  reasons.  Hence, 
the  ultimate  amount  allowed  for  any  particular  function  is 
determined  not  by  its  absolute  needs,  but  by  the  competition 
for  appropriations  amongst  all  of  the  departments.  For  that 
reason,  the  amounts  finally  granted  are  frequently  insufficient 
for  the  proper  conduct  of  at  least  some  of  the  departments. 

This  condition  bears  most  heavily  upon  departments  which 
/  operate  physical  plants,  in  the  case  of  which  considerable  ex- 
NC  penditures  for  extensions,  betterments  and  maintenance  are 
necessary  to  effective  performance.  An  appropriating  body 
can  most  readily  keep  down  the  public  outlays  by  withholding 
appropriations  for  the  purposes  indicated.  It  is  generally 
argued  that  there  is  no  hurry  about  the  matter;  that  the  ex- 
tensions and  betterments  can  be  deferred  for  two  or  three 
years,  and  that  there  is  no  need  to  spend  much  money  for 

16 


maintenance  until  the  plants  have  become  definitely  unserv- 
iceable. Hence,  the  instances  are  extremely  rare  where 
under  public  control  sufficient  capital  investments  and  outlays 
for  maintenance  are  made  to  keep  the  plant  up  to  its  proper 
operating  efficiency  and  to  enable  it  fully  to  provide  the  serv- 
ice contemplated. 

The  delays  in  the  matter  of  appropriations  which  may  be 
promptly  needed  are  almost  always  made  greater  by  the  need 
for  concurrent  action  by  separate  bodies  having  concurrent 
jurisdiction.  The  tendency  of  the  reviewing  body  is  to  reduce 
appropriations  already  insufficient,  in  order  that  it  may  gain 
the  political  prestige  of  advocating  and  compelling  so-called 
economy.  The  effect  of  such  gallery  plays  is,  of  course,  to 
render  impossible  the  proper  performance  of  the  function  to 
be  supported. 

There  are  other  influences  of  great  potency  which  tend  to 
limit  the  appropriations  without  which  the  public  business 
cannot  effectively  be  carried  on.  When  any  considerable  new 
outlays  are  contemplated,  particularly  for  such  a  public  enter- 
prise as  providing  electricity,  gas,  or  street-railway  service, 
those  outlays  are  invariably  the  subject  of  prolonged  and  fre- 
quently bitter  public  discussion,  usually  with  violent  opposition 
by  a  considerable  part  of  the  community.  This  opposition  is 
directed  to, keeping  down  the  public  outlays  without  much 
regard  either  to  the  real  needs  of  the  business  enterprise,  or 
to  the  fact  that  the  proposed  outlays  would  really  result  in 
very  material  economies  of  operation  and  decided  improve- 
ment of  service  to  the  public.  The  issue  thus  becomes  political 
and  the  question  is,  therefore,  decided  from  the  political  rather 
than  the  economic  standpoint. 

The  result  of  this  condition,  under  which  political  forces 
rather  than  sound  business  reasons  prevail,  is  that  public  serv- 
ice plants  publicly  operated  are  frequently  starved  by  reason 


of  the  failure  or  refusal  of  the  public  officials  to  approve  the 
outlays,  without  which  a  high  degree  of  efficiency  can  not  be 
maintained  nor  adequate  service  supplied. 


WASTEFUL  DISTRIBUTION  OF  CAPITAL  OUTLAYS* 

LONG  experience  by  this  nation  in  the  distribution  of 
money  for  public  improvements  has  demonstrated  be- 
yond any  question  that  the  outlays  for  that  purpose  are 
largely  determined  by  political  influence,  and  but  little  by 
economic  utility.  Seven  hundred  million  dollars  have  already 
been  spent  by  the  United  States  Government  for  the  improve- 
ment of  internal  waterways.  Some  of  the  improvements 
effected  are  of  reasonable  utility  and  would  have  considerable 
value  as  integral  parts  of  a  complete  system,  but  there  is  no 
complete  system;  and  most  of  the  money  has  been  expended 
for  unrelated  local  improvements,  entirely  unwarranted  by 
the  possible  benefits.  The  latter  class  of  expenditures  are 
brought  about  solely  through  the  operation  of  political  in- 
fluence in  response  to  sectional  demands.  Those  outlays  are 
largely  in  effect  an  economic  waste,  inasmuch  as  they  are 
practically  non-productive. 

The  enormous  federal  outlays  for  public  buildings  have 
likewise  largely  been  distributed  through  the  influence  of  sec- 
tional demand  backed  by  political  influence.  A  large  part  of 
the  outlays  for  public  buildings  represents  useless  extrava- 
gance in  the  form  of  hundreds  of  expensive  and  ornate  public 
buildings  scattered  in  unimportant  towns  and  villages.  They 
are  in  large  part  needless  for  the  public  business  and  involve 
an  enormous  and  continuing  annual  outlay  for  their  upkeep. 
These  illustrations  indicate  the  methods  and  motives  which 
govern  the  distribution  of  federal  money  for  public  purposes. 

18 


No  one  familiar  with  political  methods  will  doubt  that  in  case 
of  government  ownership  and  operation  of  railroads,  tele- 
phones and  telegraphs,  the  outlays  for  extensions  and  better- 
ments will  largely  in  a  similar  manner  be  decided  by  political 
influence  and  not  by  economic  utility.  The  pressure  of  politi- 
cal considerations  will  often  be  determining.  The  sections 
which  for  any  reason  for  the  moment  have  a  controlling 
political  influence  will  be  able  to  secure  funds  for  the  construc- 
tion of  new  lines,  for  the  erection  of  extravagant  stations, 
and  unnecessary  warehouses,  grain  elevators  and  terminals, 
while  other  sections  whose  political  influence  is  at  the  moment 
less  potent  will  be  unable  to  secure  votes  for  improvements 
not  only  economically  justifiable  but  urgently  needed,  and 
even  of  national  as  well  as  of  local  benefit.  A  case  in  point  is 
the  persistent  refusal  of  Congress  to  provide  for  the  proper 
improvement  of  New  York  Harbor  where  half  of  the  com- 
merce of  the  United  States  centers,  while  at  the  same  time 
annually  spending  millions  in  scattered  local  improvements 
of  very  little  utility. 

Similarly  in  the  case  of  local  public  utilities,  political  con- 
siderations are  likely  to  figure  largely  in  the  distribution  of 
capital  outlays.  This  is  especially  true  of  street  railways  which 
under  political  management  might,  and  probably  often  would, 
as  a  result  of  political  deals  be  extended  by  the  test  of  votes 
instead  of  by  the  test  of  sound  policy. 

An  incentive  is  ever  presented  to  legislators  to  defeat 
more-needed  improvements,  unless  their  demands  for  the 
more  questionable  improvements  be  conceded.  Thus  while 
under  private  ownership  the  amount  of  capital  invested  in 
profitless  extensions  is  properly  restricted  by  economic  condi- 
tions, under  public  ownership  the  economic  restrictions  would 
have  less  force  and  would  often  be  overborne  by  the  political 
considerations.  As  a  result,  under  public  ownership,  there 

19 


would  be  a  constant  tendency  to  overburden  the  utility  with 
excessive  and  largely  wasteful  capital  outlays,  the  loss  from 
which  must  be  borne  by  the  profitable  parts  of  the  enterprise 
or,  in  many  cases,  directly  from  taxation. 


POLITICAL  RESULTS  AND  DANGERS. 

THAT  grave  political  dangers  are  inherent  in  any  scheme 
of  government  ownership  is  obvious.  The  creation  of 
a  preferred  class  of  self -perpetuating  office  holders, 
regulating  in  a  considerable  measure  their  own  compensation 
and  working  conditions,  would  constitute  a  distinct  political 
menace  to  the  electorate  and  a  burden  upon  the  tax  payers. 
The  temptation  to  demagogues  to  take  advantage  of  the  power 
thus  presented  to  serve  selfish  and  class  interests  against  the 
public  interest  would  be  constantly  present,  with  the  interests 
of  the  general  public — the  farmer,  distributor .  and  all  other 
classes  of  labor  outside  of  the  public  service — opposed  to  those 
seeking  disproportionate  advantages  for  themselves  within. 
Class  conflicts  of  serious  import  would  be  unavoidable. 

Exactly  such  a  situation  arose  in  New  South  Wales  with 
the  nationalizing  of  its  railroads.  Railroad  employees  by  rea- 
son of  their  organized  political  power  so  far  over-reached  in 
their  demands  that  a  widespread  public  reaction  was  created, 
resulting  in  the  disfranchising  of  government  railroad  em- 
ployees, thus  destroying  entirely  their  political  power  by  de- 
priving them  of  their  voting  power. 

Wage  making  for  political  rather  than  economic  considera- 
tions is  fraught  with  danger  for  all  concerned.  It  is  almost 
certain  to  be  unfair  to  either  the  public  or  the  wage-earner. 
It  may  be  unfair  to  the  public  through  unwarranted  increases 
which  place  an  undue  tax  upon  production  and  distribution 
which  would  handicap  agriculture,  industry  and  commerce, 

20 


and  prevent  competition  with  other  nations,  or  it  may  be  unfair 
to  the  wage-earner  through  the  political  ascendency  of  those 
primarily  interested  in  reducing  the  costs  of  transportation, 
who  might  refuse  just  compensation  to  those  engaged  in  its 
service. 

Any  other  basis  than  that  of  sound  economic  law — which 
of  course,  includes  willing  recognition  of  the  just  demands  of 
wage-earners  and  enlightened  and  sympathetic  consideration 
for  their  welfare  and  contentment — in  the  rendering  of  such 
public  service  is  certain  to  be  unsatisfactory  and  inequitable. 
The  importance  of  maintaining  this  form  of  service  on  a  busi- 
ness basis  to  the  producer,  the  shipper,  the  merchant  and  the 
general  consumer  can  hardly  be  over-emphasized.  Each  has 
an  important  interest  in  the  problem,  and  it  may  be  reasonably 
assumed  that  in  the  event  of  any  substantial  injustice  being 
done  to  any  important  class  by  arbitrary  political  action,  vio- 
lent reactions  and  changes  would  follow  here  as  they  have 
elsewhere,  to  the  constant  unsettling  of  the  situation. 

Another  result  of  political  management  is  found  in  the 
tendency  toward  needless  and  wasteful  increases  in  the  number 
of  employees  in  the  case  of  public  utilities  under  governmental 
operation.  The  multiplication  of  needless  offices  and  super- 
fluous employees  is  universal  in  every  branch  of  government 
service.  Under  private  control  the  object  of  the  management 
is  the  unification  and  consolidation  of  functions,  with  an  ade- 
quate but  not  excessive  personnel,  while  in  the  case  of  public 
control  the  tendency  is  toward  the  creation  of  numerous  addi- 
tional supervisory  branches  and  bureaus  entailing  an  increase 
of  personnel. 

The  useless  subdivision  and  the  increase  in  officials  in  pub- 
lic management  is  mainly  due  to  political  causes,  the  obvious 
motive  being  to  provide  additional  places  for  political  hench- 


21 


men.  Because  of  these  conditions  the  cost  of  performing  the 
work  is  largely  and  wastefully  increased. 

This  condition  is  illustrated  by  the  present  govern- 
ment railroad  control,  under  which  more  than  eleven  hundred 
new  officials  are  employed  in  the  central  administration  at 
Washington  in  addition  to  an  even  greater  number  distributed 
in  the  offices  of  the  Regional  Directors.  All  of  these  have 
been  added  to  the  previously  existing  forces  of  the  railroads 
when  under  private  control,  whereby  the  aggregate  expense 
of  the  present  railroad  administration  has  been  increased  by 
many  millions  of  dollars  annually,  despite  the  widely  heralded 
consolidation  and  unification  whose  purpose  was  to  effect 
econcv  ny. 

This  phase  of  the  subject  is  still  further  illuminated  by  the 
experience  of  the  French  governmental  railroads  cited  some- 
what in  detail  below. 


WHAT  EXPERIENCE  OF  GOVERNMENT  OPERATION 

SHOWS* 

THE  defects  and  abuses  outlined  above  have  manifested 
themselves  wherever  state  operation  has  been  applied. 
With  the  single  exception  of  Prussia,  state-owned 
railroads  have  been  financial  failures.  In  general  their  rates 
are  higher  and  their  service  poorer  than  those  of  privately 
operated  railroads.  Despite  high  rates  and  generally  poor 
service,  the  state-owned  railroads  of  Australia,  New  Zealand, 
Austria,  Italy  and  France  have  to  pay  part  of  their  fixed 
charges  out  of  general  taxation.  The  railroads  of  the  three 
states  last  named  are  monuments  of  financial  mismanagement. 
A  minor  part  of  the  Australian  lines  was  built  in  response  to 
political  pressure,  and  its  revenues  barely  pay  operating  ex- 
penses. Canada's  Inter-Colonial  Railway,  estimated  to  cost 

22 


less  than  $40,000,000  actually  cost  more  than  $90,000,000. 
It  likewise  was  built  under  political  pressure.  During  forty 
years'  existence  it  has  seldom  earned  even  operating  expenses ; 
and  every  year  during  its  history,  the  Canadian  people  have 
been  taxed  to  meet  its  defiicit. 

The  financial  success  of  the  Prussian  railroads  is  due  to 
high  rates,  which  average  about  twice  those  of  American  rail- 
roads, despite  the  fact  that  the  Prussian  roads  pay  practically 
no  taxes  and  that  American  wages  are  double  those  of  Prussia. 
Moreover,  the  operating  costs  of  the  Prussian  roads  are  seri- 
ously and  wastefully  swelled  in  the  item  of  labor  costs,  by  the 
excessive  number  of  employees;  where  American  railroads 
employ  one  hundred  men  the  Prussians  employ  approximately 
one  hundred  and  sixty-six — an  excess  common  everywhere 
under  state  operation. 

The  French  state-owned  railroads  embody  all  the  abuses 
referred  to  above.  The  French  Government  took  over  the 
Western  system  January  i,  1909.  After  five  years  of  govern- 
ment operation,  the  gross  revenue  had  increased  by  $6,556,- 
ooo.  During  the  same  period  the  operating  expenses  had 
increased  by  $13,090,000.  In  the  last  year  of  private  opera- 
tion the  net  revenues  were  $13,757,000;  in  the  fifth  year  of 
government  operation,  with  a  considerable  increase  in  traffic, 
the  net  revenues  were  $7,223,000.  Under  private  ownership 
in  1908,  67.8  per  cent,  of  the  gross  revenue  went  to  pay  operat- 
ing costs;  under  government  ownership,  the  operating  costs 
in  1912  had  increased  to  89.4  per  cent,  of  the  gross  revenue, 
an  increase  in  four  years  of  21.6  points,  equal  to  about  32 
per  cent,  over  previous  costs.  During  the  same  period  the 
operating  ratio  of  the  five  private  French  companies  increased 
only  8.1  points.  The  very  disproportionate  increase  in  the 
operating  costs  of  the  state  railway  was  largely  due  to  need- 
less employees  and  excessive  wages.  Where  the  private  com- 


panics  employed  174  persons,  the  state  railway  employed 
235  persons;  where  the  private  companies  paid  $57.00 
in  wages,  the  State  railway  paid  $97.00.  The  new  appoint- 
ments were  largely  political.  The  heads  were  inexperienced 
and  incompetent;  the  rank  and  file  were  disloyal  and  disaf- 
fected. Discipline  went  to  the  dogs;  and  the  service  became 
completely  demoralized. 

The  heavy  increase  in  outlays  did  not  produce  better  service 
but  produced  worse  service.  The  excess  cost  did  not  go  for 
improvements  of  the  properties  or  for  better  methods;  but 
for  payment  of  excessive  wages  and  for  superfluous  employees 
imposed  by  political  influence. 

These  were  the  results  in  democratic  France  of  the  applica- 
ation  of  political  methods  to  an  industrial  enterprise. 

The  telephone  system  in  France  has  likewise  been  debased 
to  the  lowest  level  of  inefficiency  through  the  operation  of 
political,  in  place  of  business  management.  Its  equipment  is 
inadequate,  its  management  incapable,  its  discipline  extremely 
poor,  and  its  service  detestably  bad. 

In  England  the  telephone  system  is  state-owned,  and  op- 
erated by  the  Post  Office  Department.  The  service  is  unre- 
liable and  subject  to  much  delay.  (In  passing  it  may  be  said 
that  the  highly  efficient  telegraph  service  of  England,  for 
which  the  rates  are  very  low,  is  provided  at  the  cost  of  a  heavy 
annual  deficit,  payable  by  taxation).  The  installation  is  in 
large  part  antiquated.  It  can  be  brought  up  to  American 
standards  only  by  extensive  reconstruction  at  a  cost  of  many 
million  pounds ;  and  the  funds  required  have  been  persistently 
refused  by  the  Government. 

In  America  municipal  ownership  and  operation  have  not  as 
a  rule  resulted  in  either  better  service  or  lesser  cost;  on  the 
contrary  in  many  instances,  after  an  initial  period  of  good 
service  and  lessened  charge  to  the  public,  the  plants  have  usu- 

24 


ally  gradually  deteriorated  until  good  service  has  become  im- 
possible; and  as  deferred  and  concealed  costs  have  developed 
the  true  costs  have  been  found  much  greater  than  shown  by 
the  misleading  and  incomplete  public  accounts.  In  most  cases  / 
depreciation  has  been  rapid  by  reason  of  insufficient  appro- 
priations for  maintenance,  usually  grudgingly  given  and  often 
withheld,  because  of  the  political  opposition  to  a  high  tax 
rate.  A  sinking  fund  for  replacement  has  seldom  been  pro- 
vided, and  in  consequence  when  the  plant  has  become  obsolete 
a  new  capital  investment  has  been  required.  At  this  juncture 
many  communities  have  learned  for  the  first  time  the  true  cost 
of  their  adventure  in  municipal  ownership;  and  have  realized 
that  their  service  would  have  cost  them  less  under  capable 
private  management,  suitably  controlled  by  the  public,  than 
under  generally  slack  public  management.* 

As  a  result  of  their  disillusioning  experience  several  hun- 
dred American  municipalities  have  discontinued  their  attempts 
to  save  money  by  carrying  on  a  business  undertaking  through 
the  machinery  of  politics. f 

There  are  in  America,  apparent  exceptions  to  the  general 
rule  of  municipal  inefficiency;  but  they  are  only  apparent  and 
not  real.  Seemingly  excellent  showings  are  frequently  made. 
These  usually  cover  only  a  short  initial  period.  They  gen- 
erally only  cover  obvious  current  costs,  and  omit  important 
factors  of  future  costs.  Loss  in  taxes,  interest  on  investment,  , 
depreciation,  amortization,  extensions  and  betterments,  rents 
and  maintenance  of  public  buildings  whose  costs  are  borne  by 
other  departments,  are  commonly  ignored.  By  these  omis- 
sions an  apparently  favorable  financial  showing  is  made; 
while  a  true  accounting  would  show  the  reverse. § 

Municipal  operation  has,  however,  been  successful  in  var- 

*  See  Appen.  B.  p.  55 ; 
t  See  Appen.  C.  p.  69 ; 
§  See  Appen.  E.  p.  77. 

25 


ious  European  municipalities,  notably  Glasgow,  whose  public 
utilities  are  managed  with  great  efficiency  and  excellent  finan- 
cial results.  The  same  is  true  of  certain  German  and  Austrian 
cities. 

The  reason  for  this  success  is  simple.  Politics  in  the  Amer- 
ican sense  does  not  enter  into  these  municipal  undertakings. 
In  these  places  municipal  activities  are  regarded  solely  as 
business  matters  to  be  managed  by  business  methods.  Elected 
officials  are  commonly  highly  qualified  business  men,  whose 
sole  concern  is  the  efficient  and  economical  management  of  the 
business  affairs  with  which  they  are  charged.  To  this  they 
diligently  devote  their  ability  and  training  and  apply  the  sound 
methods  which  experience  has  taught  them  to  apply  to  their 
highly  organized  private  affairs.  Their  managers  and  their 
subordinates  are  permanent  officials,  qualified  by  continuous 
service  in  their  respective  fields  to  perform  their  services  with 
efficiency.  Their  tenure  is  secure.  The  changes  are  infre- 
quent and  solely  for  sound  business  reasons.  There  is  no 
general  overturning  after  each  election,  as  in  America,  with 
a  consequent  injection  of  inexperienced  officials.  There  is 
no  redistribution  of  offices  as  rewards  for  political  service. 
Effective  performance  of  the  business  function  is  the  sole 
motive,  and  sound  business  methods  are  the  sole  methods  em- 
ployed. In  Germany,  municipal  officials  are  not  only  specially 
trained  for  the  special  business  functions  entrusted  to  them, 
but  their  tenure  is  practically  permanent,  and  they  are  thus 
enabled  to  attain  high  proficiency. 

It  is  superfluous  to  say  that  contrary  conditions  prevail  in 
American  municipalities,  where  most  offices  are  prizes  of  poli- 
tics, and  incessant  change  with  little  regard  to  fitness  is  the 
rule.  It  is  hopeless  to  expect  the  excellence  of  Glasgow  under 
American  conditions. 


26 


GOVERNMENT    OWNERSHIP    OF    PLANT    AND 
OPERATION  BY  CONTRACT. 

IT  is  often  proposed  that  the  public  should  itself  construct 
and  own  the  physical  plants  of  public  utilities,  and  secure 
their  operation  by  contract  with  an  operating  company, 
in  order  to  avoid  the  assumed  evils  of  overcapitalization  and 
secure  a  revenue  for  the  public  in  the  form  of  rentals  or  a 
share  in  the  profits.  It  is  further  contended  that  this  plan 
would  avoid  the  evils  of  political  control  and  secure  the  greater 
efficiency  which  is  the  result  of  private  enterprise  and  business 
methods. 

These  contentions  have  little  weight.  The  practice  of  over- 
capitalization with  its  evils,  whether  actual  or  assumed,  has 
been  practically  abolished  by  the  operation  of  existing  laws 
enforced  through  railroad  and  public  service  commissions. 
Except  in  possibly  a  few  states,  securities  can  no  longer  be 
issued  except  with  the  approval  of  regulatory  public  bodies. 
Before  such  approval  is  granted  it  must  be  shown  that  the 
funds  to  be  raised  are  reasonably  necessary  for  the  purposes 
of  the  business.  Those  purposes  must  be  specified  in  detail 
and  application  of  the  funds  to  any  but  the  specified  purposes 
is  prohibited. 

The  requirements  as  to  accounting  are  such  as  to  practically 
preclude  the  application  of  funds  raised  by  the  sale  of  securi- 
ties for  any  except  the  purposes  approved.  It  is  therefore  un- 
necessary to  resort  to  public  ownership  in  order  to  prevent 
such  evils  as,  it  is  commonly  believed,  result  from  overcapital- 
ization, so  that  in  the  respect  indicated  government  ownership 
offers  no  advantage.  Moreover,  capitalization  as  evidenced 
by  the  volume  of  outstanding  securities  is  now  disregarded 
by  regulatory  bodies  as  a  basis  for  rate-making,  and  rates  are 
made  with  relation  to  a  fair  return  on  the  value  of  the  prop^ 

27 


erty  actually  and  necessarily  employed  in  the  public  service; 
and  in  the  case  of  railroads  with  relation  to  competition. 

There  are,  in  addition,  serious  objections  to  government 
ownership  which  seem  to  limit  its  utility  and  make  the  desir- 
ability of  its  general  adoption  questionable.     Among  these 
objections  is  the  fact,  as  shown  by  the  experience  of  nearly  all 
state-owned  railroads,  that  the  cost  of  construction  by  govern- 
ments is  usually  materially  greater  than  the  cost  of  similar 
work  by  private  enterprise.     The  Inter-Colonial  Railroad  of 
Canada  affords  a  glaring  instance  of  excessive  cost.     In  its 
effect,  the  result  of  this  greater  cost  is  precisely  the  same  as 
the  effect  of  an  over-issue  of  securities  or  stock  watering.    In 
both  cases  the  capital  charges  are  unduly  high  and  the  enter- 
prise is  financially  burdened  to  that  extent. 
I     As  has  been  pointed  out  above,  governments,  whether  state 
I  or  municipal,  are  always  reluctant  to  make  large  capital  in- 
•  vestments  after  the  initial  investment  has  been  made.     It  is 
'  therefore  difficult  promptly  to  secure  additional  appropriations 
for  extensions  and  betterments,  which  are  frequently  neces- 
[   sary  for  the  efficient  operation  of  the  properties.     Inefficient 
/    service  necessarily  results  from  the  failure  to  provide  such 
appropriations.     This  is  well  illustrated  in  the  case  of  the 
existing  subways  in  this  city.     An  unbearable  congestion  of 
traffic  made  measures  of  relief  imperative.    The  only  means 
possible  at  the  time  was  an  increase  in  the  train  capacity  from 
seven  to  ten  cars,  which  could  not  be  effected  without  a  corre- 
sponding lengthening  of  the  station  platforms,  at  a  cost  of 
several  million  dollars.     Although  the  need  was  imperative, 
several  years  of  bickering  and  delay  ensued  before  the  needed 
funds  were  provided,  due  in  part  to  disputes  as  to  whether 
or  not  the  operating  company  should,  under  its  contract,  pay 
the  additional  fixed  charges  involved  by  the  new  investments. 
While  difficulties  of  this  class  would  arise  only  infrequently 

28 


in  the  case  of  plants  whose  plan  was  practically  complete  at  the 
outset,  their  recurrence  in  the  case  of  such  undertakings  as 
railroads  and  telephones  would  be  constant,  and  it  is  certain 
that  the  funds  required  for  extensions  and  betterments  would 
never  be  provided  to  the  extent  and  with  the  promptitude  neces- 
sary to  fully  efficient  operation.  Efficient  operation  and  proper  //• 
service  depend  upon  sufficiency  of  plant,  and  where  the  opera-  \  rf 
tion  is  under  one  control  and  the  construction  under  another, 
it  is  very  unlikely  that  the  views  of  the  municipal  owner  will 
coincide  with  those  of  the  operating  contractor,  when  the 
question  involved  is  that  of  large  additional  capital  outlays. 
Hence,  it  is  fairly  certain  that  in  the  application  of  this  plan, 
plant  development  will  lag  seriously  behind  the  standard  neces- 
sary for  efficient  service,  even  when  the  additional  revenue 
to  be  derived  would  warrant  the  additional  outlays. 

A  further  difficulty  is  the  uneconomic  allocation  of  outlays 
in  response  to  sectional  demands,  which  has  been  discussed 
above.  Much  uneconomic  construction  is  certain  to  be  under- 
taken as  a  result  of  political  pressure.  The  result  of  such  out- 
lays is  to  starve  the  rest  of  the  system  by  diverting  funds 
which  otherwise  would  have  been  provided  for  reasonable  and 
necessary  improvements  upon  the  main  parts  of  the  system, 
which  improvements  are  essential  to  proper  service. 

It  is  quite  possible,  however,  that  in  occasional  particular 
cases  this  partnership  between  the  public  as  owners  of  the 
property  and  the  operating  company  might  be  productive  of 
benefit,  but  we  doubt  whether  the  plan  would  often  be  effective. 


SUMMARY  AND  CONCLUSIONS. 

The  preceding  review  of  governmental  operation  outlines 
the  reasons  why  it  is  unsuited  to  economic  undertaking.  Some 
of  these  reasons  have  been  more  fully  stated  and  illustrated  in 

29 


a  previous  report  of  The  Association,  made  in  1916.*  The 
principle  of  political  selection  whose  application  is  inevitable, 
produces  an  inferior  personnel,  lacking  the  experience  and 
sound  judgment  necessary  to  the  proper  conduct  of  business 
affairs,  with  resulting  inefficiency,  waste  and  excessive  cost. 

The  financing  of  economic  undertakings  can  seldom  be 
properly  provided  for  under  government  control  for  reasons 
stated  above.  By  reason  of  inferior  management  and  insuf- 
ficient financing,  government  properties  are  likely  to  be  in- 
sufficiently maintained,  be  subject  to  excessive  deterioration, 
and  generally  fall  short  of  the  standards  essential  to  adequate 
service. 

While  we  are  not  unmindful  of  the  defects  that  not  infre- 
quently characterize  the  operation  by  cocporations,  of  public 
utilities,  we  do  not  believe  that  those  defects  can  be  cured  by 
substituting  another  method  which  in  every  respect  of  efficiency 
is  much  below  the  standards  that  generally  prevail  under  pri- 
vate management.  In  so  far  as  the  evils  which  are  popularly 
assumed  to  exist  in  private  management  are  found  to  exist  in 
fact,  other  remedies  than  the  substitution  of  methods  abound- 
ing in  greater  evils  should  be  found. 

We  believe  that  the  public  can  best  be  served  by  utilizing 
the  efficiency,  enterprise  and  energy  of  private  corporations 
for  the  continued  operation  of  public  utilities,  under  such 
public  control  as  shall  protect  the  public  in  its  right  to  efficient 

1  service  and  fair  rates;  and  at  the  same  time  assure  to  private 
capital  invested  in  public  utilities  a  fair  return  upon  such 
capital. 

We  do  not  find  any  change  of  conditions  resulting  from 
the  war  which  warrant  or  require  the  previous  position  of  the 
Association,  in  opposition  to  government  ownership  and  op- 
eration, to  be  modified. 

*  Copies  of  this  report  will  be  supplied  by  the  Association,  on  request. 

30 


In  our  analysis  of  the  question  we  have  dealt  mainly  with 
principles  which  are  of  universal  application  and  of  continu- 
ing force;  those  principles  apply  without  qualification  to  all 
of  the  varied  classes  of  undertakings  which  it  is  proposed 
shall  hereafter  be  operated  by  governmental  bodies,  and  to  all 
of  those  undertakings  the  disabilities  we  have  outlined  apply. 
The  controlling  consideration  is  that  political  control,  oper- 
ating through  political  methods,  is  destructive  of  economic 
efficiency  and  therefore  such  political  control  should  not  be 
applied  to  undertakings  of  an  essentially  business  nature. 

We  therefore  recommend,  That  The  Merchants'  Association 
of  New  York  reaffirm  its  previous  position  in  opposition  to 
government  ownership  and  operation  of  public  utilities. 

We  further  recommend,  That  the  Association  endeavor, 
through  the  preparation  and  wide-spread  circulation  of  suit- 
able printed  statements,  to  inform  the  public  of  the  reasons 
why  public  ownership  and  operation  is  no  remedy  for  alleged 
existing  evils  and  why  it  is  harmful  to  the  public  welfare. 

Respectfully  submitted, 

FRANK   R.    CHAMBERS,   Chairman. 

Jos.  FRENCH  JOHNSON, 

OTTO  H.  KAHN, 

H.  H.  PORTER, 

FRANCIS  H.  SISSON, 

JAMES  G.  WHITE, 

Special  Committee. 


Appendix  A. 

MUNICIPAL  LIGHTING  IN  MASSACHUSETTS. 

The  laws  of  Massachusetts  which  regulate  the  operations  of  municipally 
owned  public  utilities  are  carefully  framed  to  minimize  financial  misman- 
agement. 

They  require  that  electric  current  shall  not  be  sold  at  less  than  cost 
except  with  the  written  consent  of  the  State  Gas  &  Electric  Commission. 
In  * '  cost ' '  shall  be  included  ' '  all  operating  expenses,  interest  on  the 
investment  in  the  plant,  less  assessments  (for  extensions),  at  the  rate  paid 
upon  the  bonds  or  serial  notes  *  *  *  the  requirements  of  the  serial 
debt  or  the  sinking  fund  *  *  *  an(j  aiso  depreciation  of  the  plant  to 
be  reckoned  at  not  less  than  three  per  cent,  per  annum  of  its  cost,  and 
losses. ' ' 

Compliance  with  the  requirements  of  the  law  as  to  cost  accounting  and 
distribution  of  outlays  is  general,  and  the  accounts  of  the  municipalities, 
as  kept  under  the  supervision  of  the  Commission,  therefore  exhibit  with 
fair  accuracy  nearly  all  the  direct  outlays,  both  present  and  deferred, 
which  are  incurred  for  the  purpose  of  lighting;  with  the  exception  that 
loss  of  taxes  is  omitted  from  the  official  accounts.  This  item  should  of 
course  be  included  to  ascertain  the  actual  cost  of  the  lighting  service. 

By  reason  of  the  restrictions  of  the  law  and  its  consistent  enforcement 
by  the  State  Gas  &  Electric  Commission  "the  experiment  of  municipali- 
zation  has  been  carried  out  under  more  favorable  conditions  in  Massachu- 
setts than  in  any  other  State  in  the  Union,  and,  perhaps  than  in  any 
other  place  that  we  know  about,  not  excepting  England  or  Germany. ' ' 

Thus  the  financial  mismanagement  and  the  confused  and  misleading 
accounting  which  has  been  so  frequent  a  cause  of  failure  of  public  lighting 
plants  in  most  States  prevail  only  to  a  small  degree  in  Massachusetts;  and 
a  conclusive  demonstration  of  actual  results,  as  shown  by  accurate  cost 
accounting  becomes  possible. 

One  of  the  most  thorough  and  impartial  studies  ever  made  of  the 
comparative  results  of  municipal  and  private  plants  is  that  of  Edmond 
Earle  Lincoln,  Ph.  D.,*  comprising  an  intensive  investigation  of  17  private 
And  18  municipal  plants  in  Massachusetts. 

Mr.  Lincoln's  study  is  wholly  without  bias.     It  is  a  strictly  scientific 

*  THE  EESULTS  OF  MUNICIPAL  ELECTRIC  LIGHTING  IN  MASSACHUSETTS  :  By 
Edmond  Earle  Lincoln,  Ph.  D.,  Instructor  in  Economics,  Harvard 
University;  Boston.,  1918,  Houghton  Mifflin  Co.  We  are  indebted  to 
the  publishers  for  permission  to  use  the  extracts  and  tables  in  this 
appendix. 

33 


and  complete  presentation  of  all  the  data  relating  to  the  equipment,  ca- 
pacity, operation,  physical  and  financial  management  and  the  financial 
results  of  each  of  the  35  plants.  All  the  data  relating  to  each  group  of 
plants  are  carefully  classified  and  presented  in  comparative  tabular  form. 
Every  variation  and  difference  is  analyzed  with  care  and  its  cause  fully 
developed.  The  basis  is  thus  provided  for  an  exact  comparison  and  a 
sound  conclusion  as  to  the  relative  efficiency  and  true  financial  results  of 
both  municipal  and  private  plants. 

To  find  private  plants  exactly  comparable  in  all  respects  with  the 
municipal  plants,  "it  was  necessary  to  choose  the  smallest  and  in  many 
cases  the  more  poorly  managed  companies"  (p.  82);  so  that  in  some 
respects  the  basis  of  the  comparison  is  to  the  disadvantage  of  the  com- 
panies. 

The  results  of  Dr.  Lincoln's  analysis  show  conclusively  that  the  public 
of  Massachusetts  has  not  derived  any  appreciable  benefit  from 
municipal  ownership  and  operation  of  electric  lighting.  The  private  com- 
panies sell  current  to  consumers  at  a  slightly  less  average  rate  than  the 
municipalities  sell  it  (Table  28).  The  saving  in  street  lighting  is  nominal 
(Tables  37-41).  The  municipal  plants  do  not  serve  the  public  as  well  as 
do  the  private  plants.  The  former  are  not  as  well  equipped  as  the  private 
plants,  do  not  extend  their  service  as  fully,  and  avoid  the  less  attractive 
business.  Dr.  Lincoln  thus  sums  up  the  results  of  his  analyses  (pp.  239, 
et  seq.).  • 

"The  results  of  our  analyses  in  this  Chapter  seem  to  indicate  that 
the  municipal  plants  in  general  have  simply  held  their  own  financially,  even 
though,  in  some  instances,  it  may  have  been  at  the  customer's  expense. 
The  actual  profit  which  they  are  at  present  making  is  practically  negli- 
gible. *  *  *  When  put  on  a  reasonably  comparable  basis,  the  financial 
showing  made  by  the  municipal  plants  is  considerably  less  satisfactory 
than  that  made  by  the  companies.  The  only  financial  gain  accruing  to 
the  communities  owning  their  plants,  is  that  they  apparently  secure  their 
street  lighting  at  a  slightly  lower  cost  per  kilowatt  hour  than  would  have 
otherwise  been  the  case.  This  gain,  however,  is  too  small  to  be  of  any 
consequence  when  considered  in  connection  with  the  facts  as  we  now  know 
them. 

''Finally,  so  far  as  the  financial  aspects  of  operation  are  concerned, 
there  seems  to  be  little  in  the  rates  and  less  in  the  investment  policy  to 
cause  us  to  feel  optimistic  on  the  subject  of  municipal  ownership  in  the 
cases  studied.  Nor  on  the  other  hand,  have  they  apparently  made  any 
conspicuous  failures,  except  in  one  or  two  instances.  (Hull  and  Wakefield). 
They  simply  seem  to  have  had  the  pleasure  of  doing  for  themselves,  with 
slight  tangible  returns,  what  might  have  been  done,  and  perhaps  better 

34 


done,  by  private  enterprise.  When  we  take  into  consideration  the  great 
loss  which  is  certain  to  result  when  a  number  of  the  generating  plants  are 
junked  and  current  is  purchased  from  private  concerns — a  tendency  which 
is  at  present  well  defined  both  in  the  public  and  the  smaller  private  plants — 
the  outlook  is  not  reassuring." 

At  the  end  of  1917,  28  out  of  39  municpial  plants  were  buying  instead 
of  generating  current.  A  number  of  the  municipalities  scrapped  their 
plants,  with  heavy  loss. 

DETAILS  OF  THE  MASSACHUSETTS  TESTS. 

Dr.  Lincoln's  analyses  are  supported  by  59  tables  and  16  charts  which 
fully  exhibit  every  detail  of  each  of  the  plants  studied.  Some  of  the  salient 
facts  derived  from  his  tables  are  stated  below.  They  are  followed  by 
several  essential  summaries  which  exhibit  the  averages  of  the  two  groups. 

Capital  Investments:  These  are  shown  by  Table  25.  Dr.  Lincoln  analyzes 
the  data  with  great  care.  He  shows  that  the  wide  excess  of  the  private 
plant  investments  (82.6%),  is  due  in  part  to  the  fact  that  "the  real  estate 
investment,  as  reported  by  the  public  plants,  does  not  in  many  cases  repre- 
sent the  true  value  of  the  property  used.  *  *  *  Four  of  them  report 
no  land  whatever,  as  it  is  owned  by  some  other  municipal  department. 
One  plant,  Merrimac,  reports  neither  building  nor  land.  *  *  *  If  the 
value  of  the  reported  real  estate,  amounting  to  $857,368  and  $356,629 
respectively,  is  deducted  in  each  group,  as  well  as  about  $550,000  for 
underground  construction  and  excess  increase  in  new  poles  for  the  com- 
panies, the  average  investment  per  kilowatt  capacity  becomes  $167  for  the 
companies  and  $159  for  the  public  plants,  notwithstanding  the  fact  that 
the  distributing  system  of  the  former  covers  a  much  more  extensive  terri- 
tory. "  (Lincoln,  167). 

"The  public  plants  have  apparently  played  reasonably  safe;  but, 
unless  all  signs  fail,  they  have  done  so  at  a  considerable  sacrifice  of  that 
service  which  they  might  reasonably  be  expected  to  render.  And  this  is 
probably  the  most  decisive  consideration  in  the  argument  for  or  against 
public  ownership."  (Lincoln,  170). 

"So  far  as  we  can  secure  the  evidence,  the  greater  increase  in  invest- 
ment of  the  private  plants  not  merely  has  been  fully  accounted  for,  but 
they  even  seem  to  have  gotten  a  good  deal  more  for  their  money  than 
have  the  municipalities.  Aside  from  any  theorizing,  these  appear  to  be 
the  facts."  (Lincoln,  171). 

Another  factor  (alluded  to,  but  not  fully  developed  by  Dr.  Lincoln) 
is  the  cost  of  extensions  and  connections,  which  in  the  case  of  the  public, 
but  not  always  of  the  private  plants,  are  paid  for  by  the  consumer.  These 

35 


capital  investments  may  be  omitted  from  the  construction  accounts  of  the 
public  plants,  and  the  true  capital  investment  thus  be  correspondingly 
understated.  In  any  event  the  cost  of  service  to  the  consumer  is  increased 
by  whatever  amount  he  has  to  pay  for  the  extensions  without  which  he 
cannot  get  the  service. 

Thus  most  of  the  difference  in  capitalization  (which  is  assumed  to 
result  in  excessive  rates)  is  accounted  for  by  omission  of  land  values  by 
the  public  plants,  and  by  their  inferior  equipment. 

' '  In  view  of  the  relations  here  set  forth,  which  scarcely  need  further 
explanation  after  what  has  already  been  said  about  the  physical  equipment 
and  the  investment  of  the  two  groups,  we  might  logically  expect  the  rates 
charged  by  the  companies  for  the  same  kind  of  service  to  be  higher  than 
the  rates  of  the  municipal  plants,  for  they  would  need  to  secure  a  return  on 
a  relatively  larger  investment  per  customer.  Had  the  increased  investment 
been  recklessly  incurred,  we  could  bring  a  serious  charge  against  the  com- 
panies. But,  since  the  contrary  is  evidently  the  case,  inasmuch  as  the  addi- 
tions to  plant  account  have  been  for  the  purpose  of  taking  better  care  of 
the  trade,  it  appears  that  the  private  plants  are  to  be  praised  rather  than 
condemned."  (Lincoln,  173.) 

An  examination  of  comparative  rates  follows.  It  shows  that  the  higher 
capitalization  of  the  companies  did  not  cause  rates  higher  than  those  charged 
by  the  municipalities. 


COMPARATIVE  OPERATING  COSTS  AND  EELATIVE  EFFICIENCY. 

These  are  shown  by  Tables  26,  27  and  48.  In  every  essential  element 
of  cost  the  showing  is  markedly  against  the  municipal  plants,  indicating 
inferior  management,  and  probably  inferior  equipment.  The  costs  of  pro- 
duction and  distribution  are  strikingly  excessive  in  the  municipal  plants.  To 
manufacture  current  costs  them  an  excess  of  33  per  cent,  per  kilowatt  hour; 
to  distribute  current  an  excess  of  20.7  per  cent,  per  kilowatt  hour. 
Their  labor  costs  at  station,  per  kilowatt  hour  are  53  per  cent  in  excess  of 
those  of  the  private  plants;  their  excess  of  fuel  costs,  per  kilowatt  hour,  is 
13.2  per  cent. 

The  combined  costs  of  manufacturing  and  distribution,  per  kilowatt 
hour,  are: 

Municipalities    2.611  cents 

Companies    2.024  cents 

Excess  Cost,  Municipalities 0.587  cents 

Excess  Cost,  Municipalities 29  per  cent. 

/ 

36 


Table  48  shows  that  the  municipal  plants  delivered  per  employee  62,409 
kilowatt  hours,  while  the  private  plants  delivered  82,008  kilowatt  hours — the 
labor  efficiency  of  the  municipal  plants  thus  being  26  per  cent  below  that 
of  the  private  plants.  This  possibly  indicates  a  " loading"  of  municipal 
payrolls  through  political  influence,  and  certainly  indicates  inferior  man- 
agement. 

Loss  of  current  is  another  particular  in  which  the  municipalities  make 
a  bad  showing.  Dr.  Lincoln  shows  (p.  100  et  seq.)  that  whereas  18.5  per 
cent  of  the  current  produced  by  the  companies  was  unaccounted  for  (lost 
in  distribution),  the  loss  of  the  municipal  plant  was  24.2  per  cent,  their 
loss  thus  exceeding  that  of  the  companies  by  31  per  cent.  "This  greater 
leakage  of  current  is  probably  caused  largely  by  bad  engineering.  It  would 
appear  that  the  distributing  system  had  not  been  properly  maintained  and 
improved  during  the  past  few  years."  (Lincoln,  102.)  This  surmise  is 
confirmed  by  the  labor  distribution  tables,  which  show  that  the  municipali- 
ties employ  a  disproportionately  small  number  of  linemen,  although  their 
station  employees  are  excessive  in  number,  as  shown  above. 

As  to  coal  the  companies  used  it  more  efficiently  and  bought  it  more 
cheaply  than  did  the  municipal  plants.  The  cost  per  ton  to  the  former 
was  $4.15,  to  the  latter  $4.46 — an  excess  of  7.4  per  cent.  Where  the  munici- 
palities consume  4.69  Ibs.  the  companies  produce  an  equal  result  by  the 
consumption  of  4  Ibs.— a  saving  of  15  per  cent. 

Excluding  taxes — an  item  which  is  included  in  the  companies'  expenses, 
but  omitted  from  those  of  the  municipalities — the  operating  expenses  of 
the  municipalities  exceed  those  of  the  companies  by  20  per  cent.  The  rela- 
tive costs  per  kilowatt  hour  delivered,  are:  Companies,  3.144  cents;  muni- 
cipalities, 3.766  cents. 

COMPARATIVE  KATES,  INCOME  AND  ITS  DISPOSAL. 

Table  29  shows  the  maximum  rates,  prevailing  in  the  towns  in  each 
group.  These  are  modified  by  graded  scales,  discounts  for  quantity  and 
discounts  for  prompt  payment.  Their  chief  significance  is  that  they  show 
the  purpose  of  municipalities  to  collect  from  users  rates  substantially  sim- 
ilar to  those  charged  by  private  companies,  and  from  those  rates  to  meet 
operating  expenses,  the  fixed  charges  imposed  by  law,  and  the  costs  of 
street  lighting.  Table  31  shows  that  rates  equal  to  those  of  the  private 
companies  do  not  suffice  to  meet  all  the  municipalities'  charges;  and  that 
fully  to  meet  them,  higher  rates  would  be  required. 

Table  28  shows  that  the  actual  average  rates  collected  by  municipali- 
ties from  consumers  (excluding  street  lighting)  was  5.786  cents  per  kilo- 
watt hour.  The  average  company  rate  for  similar  class  of  service  was 

37 


5.461  per  kilowatt  hour;  so  that  the  companies'  rates  to  consumers  were 
slightly  less  than  those  of  the  municipalities. 

The  companies,  on  the  other  hand,  although  paying  larger  administra- 
tion costs,  taxes,  larger  interest  rates  on  a  larger  capitalization,  and  divi- 
dends, are  able  to  provide  better  service,  at  rates  to  consumers  no  greater 
than  those  charged  by  the  municipalities.  The  municipalities,  however,  ob- 
tain their  street  lighting  at  a  slightly  less  rate  than  they  would  be  obliged 
to  pay  to  the  companies.  This  apparent  advantage  largely  disappears  when 
tax  losses  (which  are  not  included  in  charges  against  income)  are  reckoned. 
Tables  37  to  40,  inclusive,  show  that  when  all  elements  of  cost  are  included, 
the  saving  in  street  lighting  is  negligible. 

An  additional  cost  factor  not  included  in  any  of  the  various  computa- 
tions is  the  payment  by  individual  consumers  of  the  cost  of  extensions  and 
connections.  There  is  no  means  of  learning  the  amount  of  this  factor,  but 
it  would  in  some  degree  offset  an  assumed  saving  in  the  cost  of  street 
lighting. 


Appendix  A. 

TABLE  15.    COMPARATIVE  AVERAGES  OP  THE  Two  GROUPS 
OF  PLANTS 

Companies  Municipal 

(Holyoke  out) 
I.  Generating  plants: 

Capacity  (K.W.)  of  dynamos 1,366  951 

Output  (K.W.H.) 1,764,719        1,163,110 

Disposal  of  current  (percentage) : 

Commercial  and  domestic  lighting.  30.6  31.0 

Street  lighting 14.3  24.3 

Power 42.7  43.8 

Other  companies 12.4  0.9 

Load  factor  (  arithmetical  average.  ..  (14)       27.7     (13)       25.5 

I  weighted  average (29.2)  (23.5) 

Customers 1,377  1,063 

(l,205)i  (l,030)i 

Population  of  district  served. 16,817  12,113 

(14,354)i          (ll,768)i 

Area  of  district  served  (sq.  m.) 58.94  24.81 

(30.67)i  (21.39)i 

Density  of  population 285.3  488.2 

(468.1)i  (550.2)i 

Age  of  plants  (years) 25.2     (18)       22.2 

(18.3)t 

Companiet  Municipal 

(Norwood  out) 
II.  Purchasing  plants: 

Output  (K.W.H.) 266,715  157,173 

Disposal  of  current  (percentage) : 

Commercial  and  domestic  lighting. .  45.2  54.6 

Street  lighting 21.0  31.3 

Power 31.3  13.9 

Other  companies 2.5  0.3 

Customers 376  289 

Population  of  district  served 5,467  2,679 

Area  of  district  served  (sq.  m.) 25.06  19.60 

(19.88)i 

Density  of  population 218.2  136.7 

Age  of  plants  (years) 15.4  8.0 

(6.5) 
i  Excluding  foreign  districts  served.  2  Age  under  public  ownership. 

39 


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TABLE  26.    OPERATING  EXPENSES  PER  K.W.H.  DELIVERED 
(1914-1915) 


Class  of  expense 

CO 
Companies 
(cents) 

(S) 
Municipalities 
(cents)  l 

Per  cent  by 
which   (2) 
exceeds  (1) 

Total  

3.572 

3.766 

5.4 

Taxes 

0428 

Salaries  of  officers  

0.197 

Total  —  taxes  deducted  

3.144 

3.766 

20.0 

Total  —  taxes  and  salaries  of  officers 
out       

2.947 

3.766 

24.0 

Cost  of  distribution  

0.648 

0.782 

20.7 

Cost  of  manufacturing  (per  K.W.H. 
made)  

1.376 

1.829 

33.0 

Labor   at   station    (per   K.W.H. 
made) 

0.408 

0.626 

53.0 

Fuel  of  every  kind  (per  K.W.H. 
made)  

(14)     0.808 

(17)   0.915 

13.2 

Coal  (per  K.W.H.  made)     

(12)     0.742 

(15)   0.933 

26.0 

K.W.H.  generated  per  plant  

1,650,091 

1,024,023 

—37.9 

K.W.H.  delivered  per  plant 

1,437,544 

881,914 

—38.8 

K.W.H.    delivered    (street   lighting 
out)  

1,232,050 

670,276 

—  15.0 

Operating  expenses  (dollars)  

$872,935 

$562,643 

—35.5 

Holyoke  omitted  here  as  elsewhere. 


TABLE  27.  PERCENTAGE  ANALYSIS  OF  EXPENSES 
(GENERATING  PLANTS) 


Kind  of  expense 

Companies 

Municipalities 

Holyokt 

Amount 

Per  cent 
of  total 

Amount 

Per  cent 
of  total 

Per  cent 
of  total 

I.  Operating  expenses  — 
General  analysis: 
Manufacture  

$386.109 
30,239 
158,465 

153,755 
39,776 
104,591 

44.4 
3.5 

18.2 

17.6 
4.5 
12.0 

$308,937i 
35,491 
117,794 

65,428 
25,596 

55.8 
6.4 
21.3 

11.9 
4.6 

70.7 
16.9 

11.5 
1.7 

Purchase  of  current 
Distribution 

Office  expenses  and 
management  .... 
Miscellaneous 

Taxes 

Total  
Total—  taxes 
deducted.  . 

II.  Operating  expenses  —  , 
Detailed  analysis 
(taxes  out) 
Fuel 

$872,935 
$768,344 

$220,204 
114,590 
32,244 
30,239 
44,236 
91,633 

22,596 
35,781 
48,201 

5,388 

0  56,158 
30,703 

8,228 
28,143 

28.7 
14.9 
4.2 
4.0 
5.8 
11.9 

2.9 

4.7 
6.3 

0.7 

7.3 
4.0 
1.1 
3.7 

$553,246 

$158,648 
109.048 
24,5631 
35,491 
21,366 
74,094 

22,328 
40,750 

3,167 

20,285 
19,507 
1,120 
22,879 

28.7 
19.7 
4.4 
6.4 
3.9 
13.4 

4.0 

7.4 

0.6 

3.7 
3.5 
0.2 
4.1 

49.8 
16.2 
3.7 

5.1 
10.3 

1.3 

7.7 

3.8 
1.2 

"i.s 

Wages  at  station.  .  . 
Repairs  at  station.  . 
Current  purchased. 
Distribution  wages. 
Repair  of  lines  .... 
Distribution  tools 
and  equipment  .  . 
General  salaries.  .  .  . 
Salary  of  officers... 
Directors'  allow- 
ances 

Salary  of  munici- 
pal light  boards  .. 
General  office  ex- 
penses   
Insurance  
Rent  of  offices  
All  other  expenses.  . 

Total  

$768,344 

$553,246 

i  Hull,  new  boiler,  $9,397,  omitted. 


TABLE  28.   INCOME  PER  K.W.H.  SOLD  (HOLYOKE  EXCLUDED) 


Item 

1910 

1915 

Per  cent 
decrease 

Com- 
panies 
(cents) 

Munici- 
palities 
(cents) 

Com- 
panies 
(cents) 

Munici- 
palities 
(cents) 

Com- 
panies 

Munic- 
ipali- 
tiet 

Total  operating  income  
Total  operating  income  (street 
lighting  out)  

6.608 
6.531 

7.960 
7.960 

5.800 
5.503 

5.895 
5.895 

15.9 
15.7 

26.0 
26.0 

Total  from  sale  of  current  

6.758 

7.742 

5.764 

5.786 

14.7 

25.S 

Total  from  sale  of  current 

(street  lighting  out)  
Commercial  light  and  powei 

6.481 

7.742 

5.461 
5.950 

5.786 
5.800 

15.7 

25.S 

Commercial  lighting  1  
Street  lighting  

ii/774 
7.675 

11.077 

10.062 
7.575 

10.305 

i4.5 
1.3 

'  '  V.O 

(7.333)' 

(4.5)* 

Power  

3.458 

3.615 

3.047 

2'.583 

11.9 

'  28.5 

Sales  to  other  companies.  .  . 

2.700 

3.000 

2.418 

4.294 

10.4 

+43.1 

Net  income 

2.522 

2.227 

11.7 

Net  income  (street  lighting  out) 

0.985 

i!691 

1.332 

0.957 

+35.2 

'  'H.S 

Operating  income  (dollars)  .  .  . 

$953,675 

$1,417,235 

+47.5 

Operating  income  (street  light- 

ing out) 

757,293 

443,423 

1,152,594 

671,761 

+52.2 

+51.5 

Net  income  (dollars) 

312,685 

544,300 

+74.0 

Net  income  (street  lighting  out) 

116,304 

62^202 

279,658 

lobiiis 

+  140.8 

+75  4 

Operating  ratio 

67.2 

61.6 

—8.3 

Operating  ratio  (street  lighting 

out)  

84.5 

86.0 

75.0 

83.7 

—11.2 

—2.7 

"Commercial"  lighting  includes  all  other  than  street  lighting. 
2  Including  only  companies  reporting  at  both  dates. 


43 


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44 

TABLE  31.  PERCENTAGE  ANALYSIS  OF  CHARGES  AGAINST 
INCOME 


Item 

Companies 

Municipalities  l 

Holyoke 

Amount 

Per  cent 
of  total 

Amount 

Per  cent 
of  total 

Per  cent 
of  total 

Operating  income 

$1,417,235 

22,222 

... 

$671,761 
2,957 

... 

Other    income    (pro- 
fit and  loss  items)  .  . 

Total  

$1,439,457 
566,521 

872,935 
90,094 
56,314 
353,870 

62.5 
6.4 
4.1 
25.4 

1.6 

$674,718 
112,075 

562,643 
62,143 
92,306 

24,596 

55,797 
8,096 

70.0 
7.7 
11.4 

3.0 

6.9 
1.0 

67.3 
7.6 
15.7 

9.2 
0.2 

Total     available 
("net") 

Charges  against  income: 
Operating  expenses  .  .  . 
Interest  

Depreciation  
Dividends  
Sinking     fund     pay- 
ments   

Note  and  Bond  pay- 
ments   

All  other  charges  
Total  

23,415 

$1,396,628 
42,829 

100. 

$805,581 
130,863 
(deficit) 

100. 

100. 

Balance  

Holyoke  omitted. 


45 


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TABLE  33.    GENERATING  PLANTS:   COMPARISON  OF  FINANCIAL 
RESULTS  OF  OPERATION' 

Municipa 
Companies  Plants 

Operating  income $1,417,235         $671,761 

Deduct  street  lighting  income 264,641 

Comparable  income $1,152,594           671,761 

Operating  expenses $872,935         $562,643 

Operating  ratio 61.6% 

Deduct  taxes 104,591 

Comparable  (?)  expenses  (a) $768,344  562.643 

Deduct  salaries  of  officers 48,200 

Comparable  expenses  (6) $720,144  562,643 

Comparable  operating  ratio  (a) 66.8%  83.7% 

Comparable  operating  ratio  (6) 62.6%  83.7% 

Holyoke  excluded  in  all  of  these  tables. 


47 


TABLE  34.   GENERATING  PLANTS:   COMPARISON  OF  FINANCIAL 
RESULTS  OF  OPERATION  (continued) 

Municipal 
Companies  plants 

Net  income. . $544,300         $109,118 

Deduct  street  lighting  income 264,641 

Total , $279,659 

Add  taxes  paid 104,591 

Comparable  net  income  (a) $384,250  109,118 

Add  salaries  of  officers 48,200 

Comparable  net  income  (6) $432,450  109,118 

Kilowatt  hours  sold  for  all  purposes  except 

street  lighting 20,944,853       11,394,749 

Excess   of   sales   of   companies  over   sales  of 

municipal  plants 84% 

Expected  net  income  of  companies  (84%  more 

than  that  of  municipal  plants) $200,777 

Advantage  of  companies  (a) 183,473 

(6) 231,673 


48 


TABLE  35.    GENERATING  PLANTS:   COMPARISON  OF  FINANCIAL 
RESULTS  OF  OPERATION  (continued) 

Municipal 
Companies  plants 

Case  (1) 

Actual  disposal  of  net  income: 

Comparable  net  income  (a) $384,250         $109,118 

Comparable  net  income  (6) 432,450 

Pro'fit  and  loss  income $22,222  2,957 

Total  (a) $406,472         $112,075 

Total  (6) 454,672 

Actual  charges  against  net  income: 

Interest 90,094  62.143 

Depreciation 56,314  .        92,306 

All  other  charges 23,415  8,096 

Total $169,823         $162,545 

Surplus  (a) $236,649         $50,470* 

(b) 284,849 

Per  cent  on  capital  stock  ($2,964,600)  (a).  8.0 

(6).  9.5 
Per  cent  on  total  investment  ($5,284,275) 

(a) 4.5                 1  ?f 

(b) 5.4 

Case  (2) 

Assuming  equal  rate  of  depreciation  (3%), 

add  to  company  charges $100,296 

Surplus  (a) 136,353 

(b) 184,722 

Equivalent  to  per  cent  on  capital  stock 

of  (a) 4.6 

(b) 6.2 

Equivalent  to  per  cent  on  total  investment 

of  (a) 2.6 

(b) 3.5 

Case  (3) 

Charging  against  municipal  net  income, 
sinking  fund  and  maturing  debt  pay- 
ments, as  the  Massachusetts  Law  pre- 
scribes : 

Sinking  fund  charges $24,596 

Bonds  and  notes  paid 55,797 

Total  charges  (including  above) $242,938 

Deficit $130,863 

Per  cent  on  total  investment 4.5 

»  Deficit.  f  Loss. 

49 


TABLE  36.   GENERATING  PLANTS:    COMPARISON  OF  FINANCIAL 
RESULTS  OF  OPERATION  (concluded) 


Companies 
Case  (1) 

Theoretical  disposal  of  net  income: 

Assuming  that  the  same  rate  of  depreci- 
ation (3%)  is  charged  off  in  both  cases 
and  that  the  same  rate  of  interest  (4%) 
is  paid  on  the  total  investment. 
Comparable  net  income  (including  profit 

and  loss  income  (a) $406,472 

(b) 454,672 


Charges  against  net  income: 

Interest  at  4% 211,371 

Depreciation  at  3% 158,528 

All  other  charges 23,415 


Total 


Municipal 
plants 


$112,075 


116,953 

87,715 

8,096 


$393,314    $212,774 


Surplus  (a) . 

(b). 


Per  cent  on  total  investment  (a). 
(6). 

Case  (2) 

Assuming  only  an  equal  rate  of  depreci- 
ation (3%)  charged  off  in  each  case,  but 
that  interest  is  paid  by  municipal  plants 
on  their  entire  investment  at  the  cus- 
tomary rate  (4%). 

Charges  against  net  income: 

Interest 

Depreciation 

All  other  charges 


$13,158 
61,358 

0.3 
1.2 


$100,699* 


$90,094 

158,528 

23,415 


Total $272,037 


$116,953 

87,715 

8,096 

$212,774 


Surplus  (a) $134,435       $100,699* 

(b) $182,804 

Equivalent  to  dividend  on  total 

investment  of  (a) 2.6%             34%^ 

(b) 3.5% 

Deficit  t  Loss. 


TABLE  37.  COST  OF  STREET  LIGHTING  TO  MUNICIPALITIES 
OWNING  THEIR  GENERATING  PLANTS  ' 

Cost  of  street  lighting  as  it  appears  from  the  returns: 

Net  income  from  operation $109,118 

Other  items  of  income 2,937 


Total $112,075 

Charges  against  income: 

Interest  actually  paid 62,143 

Depreciation 92,306 

Other  cost  items 8,096 

Total $162,545 

Deficit  in  return  for  which  street  lighting  is  secured $50,470 

Number  of  K. W.H.  used  for  street  lighting 3,589,262 

Apparent  cost  per  K.W.H.  (cents) 1.400 

Price  charged  for  street  lighting  by  companies  (cents) 7.575 

Apparent  gain  per  K.W.H.  as  a  result  of  municipal  owner- 
ship (cents) 6,175 

Equivalent  to  (about) $221,800 

1  Holyoke  omitted  throughout. 


TABLE  38.    COST  OF  STREET  LIGHTING  TO  MUNICIPALITIES 

OWNING  THEIR  GENERATING   PLANTS    (continued) 

Sinking  fund  and  maturing  debt  payments  included  (since 

they  are  incurred  as  a  result  of  municipal  ownership) : 
Total  income  available $112,075 

Total  charges  from  preceding  table $162,545 

Sinking  fund  payments 24,596 

Note  and  bond  payments 55,797 


Total $242,938 

Deficit  to  be  charged  against  street  lighting $130,863 

Apparent  cost  per  K.W.H.  (cents) 3.640 

Price  charged  by  companies  (cents) 7.575 

Apparent  gain  (cents) 3.935 

Equivalent  to  (about) $140,400 


TABLE  39.    COST  OF  STREET  LIGHTING  TO  MUNICIPALITIES 

OWNING  THEIR   GENERATING   PLANTS    (continued) 

Add  to  deficit  shown  in  Table  38  the  taxes  lost  by  municipal- 
ities owning  their  plants,  computed  at  the  same  rate  paid 
by  companies: 

(a)  Taxes  at  0.428  (cents)  per  K.W.H.  delivered $64,200 

(6)  Taxes  at  12  per  cent  of  operating  expenses 76,724 

(c)  Taxes  at  2  per  cent  on  total  investment 58,480 


Deficit  (a) $195,063 

(b) 207,587 

(c) 189,343 


Cost  of  street  light  per  K.W.H.  (cents): 

(a) 5.420 

(6) 5.770 

(c) 5.260 

Gain  per  K.W.H.  (cents): 

(a) -. i .  2.155 

(6) 1 .805 

(c) 3.315 

Equivalent  to  (a) $77,600 

(6) 64,800 

(c) 82,800 

52 


TABLE  40.     COST  OF  STREET  LIGHTING  TO   MUNICIPALITIES 

OWNING   THEIR   GENERATING  PLANTS    (continued) 

Same  as  Table  39: 

Except,  to  make  the  data  comparable,  add  salaries  of 
officers  to  expenses,  computed  at  the  same  rate  per 
K.W.H.  delivered  as  in  the  case  of  the  companies 

(0.200  cents) $30,000 

Equivalent  to  rate  per  K.W.H.  used  for  street  lighting  of 

(cents) 0.830 

Which,  added  to  the  above  rates,  makes  the  cost  of  street 
lighting  per  K.W.H.  (cents) 

(a) 6.250 

(6)..  6.600 

(c) 6.090 

Total  apparent  gain  to  municipalities: 

(a).. $47,600 

(6) 34,800 

(c) 52,800 

TABLE  41.    COST  OF  STREET  LIGHTING  TO  MUNICIPALITIES 

OWNING  THEIR   GENERATING  PLANTS    (concluded) 

Interest  computed  on  entire  investment  (at  rate  paid  on  out- 
standing debt) : 

Total  available  income $112,075 

Charges  against  income: 

Interest  (at  4%) $116,953 

Depreciation 92,306 

Other  cost  items 8,096 

Total $217,355 

Add  taxes  lost  (0.428  cents  per  K.W.H.  delivered) 64,200 

Total  charges $281,555 

Deficit $169,480 

Cost  per  K.W.H.  for  street  lighting  (cents) "     4.710 

Gain  over  company  rate  (7.575  cents) 2.865 

Equivalent  to  (about) $101,100 

In  order  to  put  the  public  plants  on  the  same  bases  for 
comparison  as  the  companies,  we  should  deduct  from 
this  apparent  gain: 

(a)  Additional  interest  which  would  be  paid  under 

private  ownership  (1  %) 29,238 

(6)  Salaries  which  would  have  been  paid  to  officers .  .  .  30,000 

Total $59,238 

Equivalent  to  rate  per  K.W.H.  used  for  street  lighting  of 

(cents) 1.650 

Making  cost  per  K.W.H.  (cents) 6.360 

Apparent  gain  from  municipal  ownership  of $41,800 

Equivalent  to  per  cent  on  investment  ($2,923,825)  of 1.4+ 

53 


TABLE  48.    COMPARATIVE  EFFICIENCY  OF  LABOR 


Item 

1910 

1915 

Per  cent 
increase 

Com- 
pany 

Munici- 
pal1 

Com- 
pany 

Munici- 

Com- 
pany 

Munici- 
pal 

I.  Generating  plants: 
Total  number  of  employees 

194 

179 

313 

230 

61.4 

30.0 

Corrected  for  1915  

295 

240 

Number  of  salaried  offi- 

cers   

33 



Number  K.W.H.  delivered 

per  employee  
Corrected  for  1915  

74,616 

49,071 

78,077 
82,008 

65,044 
62,469 

4.6 

31.1 

Including  salaried  officers 

74,500 

Operating  income  per  em- 
ployee,  excluding   street 

lighting  

$3,904 

$2,477 

$3,682 

$2,915 

—5.7 

+17.1 

Corrected  for  1915 

$3  868 

$2,800 

Including  salaried  officers 

$3,514 

Net  income  per  employee, 
excluding  street  lighting. 

$600 

$320 

$894 

$474 

Corrected  for  1915  

$948 

$455 

Including  salaried  officers 

$853 

:::; 

II.  Purchasing  plants: 
Total  number  of  employees 

58 

46 

Corrected  for  1915  

52 

Number  K.W.H.  delivered 

per  employee  

55,536 

52,788 

Corrected  for  1915.  .. 

(62,000) 

Operating  income  per  em- 
ployee,  excluding   street 

lighting  

$3,920 

$3,280 

Corrected  for  1915  

(4,376) 

Net  income  per  employee, 
excluding  street  lighting 

$344 

$140 

Corrected  for  1915  

(384) 

1  Holyoke  and  Norwood  omitted  throughout  on  account  of  their  size. 


54 


Appendix    B. 

EXAMPLES    ILLUSTRATING   THE   TENDENCY    TO    PHYSICAL 
AND  FINANCIAL  MISMANAGEMENT  BY  MUNICIPALITIES.* 

The  following  typical  examples  illustrate  the  characteristic  defects  of 
municipal  management,  namely:  Undue  cost  of  construction,  inadequate 
plant,  insufficient  maintenance,  high  labor  and  fuel  cost,  unskilled  superin- 
tendence, failure  to  provide  for  depreciation,  and  omission  from  cost  ac- 
counting of  depreciation  allowances,  sinking-fund  charges,  interests,  rents, 
lost  taxes,  outlays  from  taxes,  etc. 

Allegheny,  Pennsylvania. — The  municipal  plant  began  operation  in 
1890  giving  only  City  service.  The  cost  was  $562,000.  Investigators  for 
the  National  Civic  Federation  called  the  plant  "poorly  designed,  inefficient 
and  expensive  to  operate,"  and  stated  that  the  appropriations  for  equip- 
ment had  been  neglected  to  such  an  extent  that  "the  electrician  had  to 
build  his  own  switchboard  out  of  such  junk  as  he  could  collect  from  machine 
shop  yards."  They  stated  the  payroll  could  be  reduced  from  fifteen  to 
eighteen  per  cent,  and  criticised  the  use  of  the  plant  for  political  employ- 
ment. 

Alliance,  Ohio. — In  1914  the  Chairman  of  the  Finance  Committee  re- 
ported to  the  Council  that  the  waterworks  was  losing  $18,250  a  year. 

Baltimore,  Maryland. — An  audit  of  the  books  of  the  waterworks  in 
1911  showed  that  the  department  was  operating  at  an  annual  loss  of 
$400,000  and  that  an  increase  in  rates  averaging  thirty  per  cent,  was 


Belle fontaine,  Ohio. — An  investigation  made  in  1914  showed  that 
gas  cost  $2.25  per  thousand  feet  to  manufacture  while  the  deficit  on  the 
waterworks,  including  interest  and  other  fixed  charges,  was  $10,077.31  in 
1913.  The  electric  plant  was  so  run  down  that  it  could  not  give  adequate 
service,  and  at  least  a  third  of  the  street  lights  had  to  be  left  off  every 
night  until  enough  people  went  to  bed  to  permit  the  generators  to  carry 
the  street  lighting  load. 

*  Summarized  from  *  *  Facts  on  Municipal  Ownership  in  Two  Hundred 
Sixty-eight  Towns  and  Cities;"  by  Glenn  Marston:  (Public  Serv- 
ice Publishing  Co.,  Chicago). 

Mr.  Marston  says: — "Nearly  two  hundred  of  the  places  listed  in  this  book 
have  been  personally  investigated  by  the  author.  In  other  cases 
the  information  has  been  secured  from  the  most  reliable  sources, 
generally  city  and  state  officials  and  reports." 

55 


Bloomington,  Illinois. — The  street  lighting  plant  was  made  to  show 
low  operating  cost  by  making  no  allowance  for  depreciation.  The  plant 
had  to  be  entirely  rebuilt  in  1906  at  a  cost  of  $40,000.  The  old  machinery 
was  sold  for  $3,300  though  the  plant  had  cost  $87,000.  A  contract  could 
be  made  with  a  traction  company  which  would  save  the  city  $10,000  to 
$15,000  a  year  over  the  present  cost  of  running  the  plant. 

Bowling  Green,  Ohio. — The  city  went  into  the  gas  business  about  1895 
and  sold  out  for  $6,000  in  1899.  The  original  investment  was  $60,000. 
In  addition  there  were  losses  in  operation  estimated  at  $50,000,  making 
the  total  loss  to  the  city  for  five  years  of  municipal  ownership  $104,000. 

Burlington,  Vermont. — The  accounts  of  the  municipal  light  plant  had 
shown  small  annual  profits.  Depreciation  of  the  plant,  however,  had  not 
been  properly  charged  off.  By  1915  the  plant  was  completely  worn  out, 
and  the  depreciation  fund  amounted  to  only  one-seventh  of  the  cost  of 
the  plant.  In  other  words,  there  was  an  investment  of  $124,085  not 
provided  for  by  the  depreciation  fund,  which  amount  it  was  necessary  to 
write  off  with  the  exception  of  $16,975  which  represented  land  and  buildings. 

Butler,  Missouri. — H.  M.  Cannon,  Manager  of  the  municipal  electric 
plant  wrote  in  1914  as  follows:  ''I  have  had  enough  experience  with 
municipal  ownership  to  know  it  is  a  dismal  failure.  I  have  figures  to  show 
that  our  plant  has  always  been  a  failure  and  an  expense  to  the  people. 
The  trouble  with  municipal  ownership  lies  in  the  fact  that  in  the  larger 
cities  it  soon  drifts  into  public  corruption  and  favoritism  and  in  smaller 
cities,  where  the  Council  changes  every  year,  the  men  and  management 
never  know  what  to  depend  upon,  have  no  interest  in  the  business  other 
than  their  wages  and  let  things  go  to  rack. ' ' 

Cedar  Eapids,  Iowa. — In  a  decision  of  the  Iowa  Supreme  Court  in 
1913  the  Court  pointed  out  that  municipal  ownership  was  very  costly  to 
the  people  of  Cedar  Eapids.  The  people  voted  to  buy  the  waterworks  with 
the  understanding  that  the  rates  would  be  reduced.  The  rates  were  not 
reduced  but,  instead,  a  special  tax  levy  was  made  to  meet  expenses  con- 
nected with  the  plant  which  could  not  be  met  from  the  revenue  of  the  plant. 

Chicago,  Illinois. — The  loss  on  the  municipal  electric  plant  operated 
by  the  Sanitary  District  of  Chicago  amounted  to  $199,781.10  in  1911.  The 
total  losses  during  the  four  years  of  operation  up  to  that  time  amounted 
to  over  $600,000.  The  actual  expenses  of  the  electric  department  of  the 
Sanitary  District  for  1911  were  $901,723.47,  while  the  total  income  from 
the  sale  of  electric  current  amounted  to  $701,942.37.  In  order  to  make  a 
showing  more  favorable  than  the  above,  officials  charged  part  of  the  invest- 
ment costs  to  other  departments  and  neglected  to  make  adequate  provision 

56 


for  depreciation.  On  January  8,  1914,  the  Chicago  Tribune,  always  a 
defender  of  the  Sanitary  District  administration,  said :  ' '  The  demonstrable 
fact  is  that  the  present  cost  of  producing  electricity  is  at  least  twice  as 
high  as  it  should  be.  This  excessive  cost  is  due  to  three  general  conditions: 
Unsystematic  engineering  plans,  grossly  padded  payroll  costs,  unbalanced 
consumption  of  the  power  of  the  plant.  These  three  faults  are  all  due 
to  politics/'  :!j  i 

The  waterworks  have  been  run  at  a  loss  for  years.  Dabney  H.  Maury, 
consulting  engineer  for  the  "Merriam  Commission, "  reported  in  1911  that 
the  plant  was  obsolete  and  large  sums  were  needed  to  put  it  in  good  condi- 
tion. Aldermen  placed  this  sum  at  $15,000,000. 

Chicopee,  Massachusetts. — C.  W.  Whiting,  consulting  engineer  for  the 
Municipal  Electric  Light  Commission  of  Chicopee,  made  an  examination 
of  the  plant  in  1911  and  found  equipment  which  had  cost  $65,000  to  be 
worn  out  and  practically  useless.  He  found  it  would  be  necessary  to  spend 
$90,000  to  put  the  plant  in  condition  adequately  to  serve  the  city.  The 
allowance  for  depreciation  had  been  made  a  bookkeeping  charge  only. 

Cleveland,  Ohio. — The  State  Bureau  of  Inspection  and  Supervision  of 
Public  Offices  examined  the  books  of  the  South  Brooklyn  municipal  electric 
plant  for  three  years  ending  1908  and  showed  the  costs  per  are  lamp.  The 
following  table  compares  the  true  costs  as  developed  by  the  state  audit, 
with  the  costs  reported  by  the  municipal  manager  and  the  costs  of  service 
per  lamp  in  adjacent  territory  served  by  the  Cleveland  Electric  Illuminating 
Company : 

1906  1907  1908 

Municipal  Manager                                 $58.25  $73.37  $48.13 

State  Audit                                               81.10  73.15  69.25 

Electric  Illuminating  Company             69.72  67.92  54.96 

During  the  four  years  ending  1909  the  lights  furnished  by  the  municipal 
plant  cost  $133,000.  If  these  lights  had  been  furnished  by  the  Cleve- 
land Electric  Illuminating  Company  they  would  have  cost  $109,000,  show- 
ing a  loss  to  the  city  of  $24,000  on  the  small  proportion  of  lighting  done 
by  the  municipal  plant. 

Public  Service  Director  Lea,  in  July,  1910 ;  said  of  the  two  municipal 
light  plants  owned  by  the  City  of  Cleveland:  "For  weeks  accountants 
have  been  trying  to  arrive  at  a  correct  posting  of  the  records  of  the  two 
plants  so  as  to  enable  us  to  tell  whether  they  are  paying  or  losing.  I 
am  satisfied  that  both  plants  have  never  earned  a  cent  if  depreciation  is 
figured  in.  Figures  already  compiled  tell  us  this,  but  the  system  of  book- 

57 


keeping  employed  has  not  been  detailed  enough  to  show  an  accurate  account- 
ing "  (Elsewhere  will  be  found  a  summary  of  the  results  of  an  investiga- 
tion into  Cleveland's  lighting  accounts  for  the  year  1915  which  de- 
monstrates a  loss  although  the  official  published  accounts  showed  a  moderate 
profit). 

Concord,  Massachusetts. — Up  to  1910  depreciation  had  never  been 
charged  for  by  this  town.  In  that  year  it  would  have  been,  according  to 
law,  $4,320  (3%  of  $144,021)  and  would  have  created  a  deficit,  as  the 
cash  balance  was  only  $1,645.21.  The  city  appropriated  $5,000  for  operat- 
ing expenses  and  spent  $20,000  in  1909,  a  large  part  of  which  went  for 
replacing  worn-out  equipment  which  had  not  been  charged  off  to  deprecia- 
tion. 

Coraopolis,  Pennsylvania. — Deficit  on  operations  for  1911 — $2,507.  A 
large  floating  debt  for  construction  in  each  department,  the  deficit  on 
construction  being  $8,488  on  water  and  $18,282  on  electric  light.  The  city 
report  is  made  in  such  a  manner  that  it  is  impossible  to  tell  whether  these 
deficits  represent  the  total  losses  or  not.  There  is  no  depreciation  account. 
Depreciation  seems  to  be  met  by  successive  new  bond  issues. 

Council  Bluffs,  Iowa. — Municipal  ownership  has  not  lowered  water 
rates  but  has  increased  taxes  by  at  least  five  mills  according  to  a  report 
of  the  State  Examiner  of  Public  Accounts  made  early  in  1914.  The  meter 
rates  for  water  are  the  same  under  municipal  ownership  as  under  the  old 
company.  The  flat  rates  are  higher.  Under  private  ownership  the  people 
were  taxed  two  mills  to  pay  for  hydrant  rental.  Now  they  are  taxed  two 
mills  on  account  of  water  bonds  and  five  mills  additional  to  meet  running 
expenses. 

Crawfordsville,  Indiana. — In  1910  Professor  J.  W.  Esterline,  of  Purdue 
University,  was  engaged  to  examine  the  municipal  electric  light  plant  with 
a  view  to  rehabilitation.  He  recommended  that  the  entire  plant  be  scrapped, 
as  it  was  worn  out  and  obsolete.  He  estimated  the  cost  of  a  new  plant 
at  $93,000. 

Cuyahoga  Falls,  Ohio. — In  1913  an  investigation  showed  that  the 
municipal  water  and  light  plants  incurred  a  deficit  of  $14,057.  It  was 
also  found  that  the  plant  was  ready  for  the  scrap  heap  and  that  political 
interference  prevented  the  plant  from  being  run  economically. 

Edmonton,  Alberta. — According  to  W.  T.  Woodroofe,  superintendent 
of  the  municipal  street  railway,  there  was  a  deficit  of  $26,495  during  the 
year  1912.  The  Official  Gazettey  the  city's  publication,  reported  that  the 
loss  on  the  municipal  street  railway  up  to  January  1st,  1914,  was  $405,394. 

Elgin,  Illinois. — The  municipal  lighting  plant  was  turned  over  to  a 

58 


private  company  in  1904,  after  sixteen  years  of  unsuccessful  operation, 
during  which  time  the  loss  is  estimated  to  have  been  at  least  $100,000. 
In  1911  the  city  tried  to  sell  its  generating  machinery  (which  the  company 
had  found  too  antiquated  to  operate)  and,  although  this  machinery  had 
cost  the  city  $50,000  twelve  years  before,  the  only  bid  received  was  $1,000. 
Depreciation  was  at  the  rate  of  eight  per  cent,  for  which  no  allowance  had 
ever  been  made  during  the  time  the  city  operated  the  plant 

Escanala,  Michigan. — After  five  years'  trial  of  municipal  operation, 
the  Finance  Committee  of  the  Council  recommended  that  the  plant  be  sold 
on  account  of  inefficient  management  and  losses.  Later  the  generating 
plant  was  abandoned  and  current  was  purchased  from  a  private  company. 

Eugene,  Oregon. — The  water  plant  was  purchased  from  a  company  in 
1908  and  has  lost  money  ever  since.  The  report  for  1912  showed  a  deficit 
of  $14,791.36.  This  is  almost  half  of  the  total  revenue,  including  money 
paid  by  the  city  out  of  taxes  for  hydrant  rental.  The  loss  on  the  electric 
plant  in  the  same  year  was  at  least  $16,000  and  probably  more.  Faulty 
construction  has  caused  large  loss. 

Findlay,  OMo. — This  city  tried  municipal  ownership  of  a  gas  plant 
but  ran  heavily  in  debt  and  sold  the  plant  in  1899,  the  outstanding  obli- 
gations at  that  time  being  over  $60,000.  The  capital  outlays  upon  the 
plant  amounted  to  over  $310,000.  The  plant  was  sold  for  $150,000.  The 
former  superintendent  of  the  municipal  plant  said :  l '  When  the  city  owned 
the  plant  unnecessary  expenditures  were  constantly  being  made  while  in 
many  cases  necessary  improvements  were  ignored.  The  pipe  line,  some  of 
which  was  thirty  years  old  or  more,  was  in  very  bad  shape.  A  large  amount 
would  have  been  necessary  to  put  the  plant  into  shape  by  the  city.  It 
was  therefore  sold.  No  city  can  own  and  properly  operate  a  gas  plant." 

Forest  Grove,  Oregon. — In  1909  a  municipal  light  and  water  plant  was 
built,  bonds  being  voted  on  the  promise  of  low  rates.  In  the  summer  of 
1910  the  rates  were  raised  to  a  higher  point  than  those  paid  by  customers 
of  private  companies  in  nearby  towns.  Customers  were  also  forced  to 
buy  their  own  electric  light  and  water  meters.  In  1912  the  plant  was  shut 
down  and  sold. 

Fort  Wayne,  Indiana. — H.  P.  Page,  certified  public  accountant,  made 
an  investigation  of  the  municipal  electric  light  plant  in  1910,  which  showed 
that  the  plant  lost  $29,784.47  between  September  1,  1908,  and  January  1, 
1910. 

Forth  Worth,  Texas. — In  1911  the  city  abandoned  its  electric  street 
lighting  generating  plant  and  has  since  purchased  power  from  a  private 
company.  In  1911  there  were  446  arcs  and  500  incandescent  lights  sup- 

59 


plied  from  the  municipal  generating  station.  In  1912,  a  year  after  be- 
ginning to  take  current  from  the  private  company,  there  were  700  arcs 
and  1,150  60-watt  mazda  lamps,  yet  the  cost  of  this  greatly  increased  sup- 
ply was  no  more  than  the  cost  of  the  much  smaller  installation  which  had 
been  supplied  from  the  municipal  plant. 

Galva,  Illinois. — Total  receipts  from  the  municipal  water  and  light 
plant  for  the  year  ending  March  31,  1910 — $4,258.76.  Operating  ex- 
penses— $4,191.33.  Interest — $900.  Depreciation  at  seven  per  cent. — 
$1,260.  Sinking  fund  at  two  per  cent. — $360.  Total  deficit— $2,452.27,  or 
more  than  half  the  total  income  from  both  plants. 

Georgetown,  Ohio. — Deficit  for  1913,  including  fixed  charges,  over 
seventy-seven  per  cent,  of  the  total  revenue. 

Glouster,  Ohio. — As  a  result  of  an  investigation  it  was  shown  that  it 
cost  64  cents  per  kilowatt  hour  to  make  electricity  in  1913. 

Griffin,  Georgia. — Deficit  for  1911 — $12,809.46,  without  including  lost 
taxes. 

Hagerstown,  Indiana. — The  State  Examiner  reported  in  1913  an  opera- 
ting deficit  of  $3,222.71,  .covering  the  preceding  four  years.  In  addition, 
payments  on  account  of  the  electric  light  fund  were  made  of  $4,161.19. 
He  says:  "Municipal  ownership  has  not  proved  a  success  in  Hagerstown. " 

Hamilton,  Ohio. — In  1906  a  report  made  to  the  state  auditor  said: 
"The  administration  of  the  Board  of  Public  Service,  extending  over  the 
period  stated  heretofore,  is  marked  with  evidence  of  mismanagement,  extra- 
vagance and  unbusinesslike  methods  in  the  operation  of  public  properties 
placed  in  their  hands."  The  city  reports  do  not  include  interest,  deprecia- 
tion, lost  taxes  or  legal  expenses,  and  therefore  purport  to  show  a  profit 
which  quickly  disappears  and  becomes  a  large  deficit  in  the  case  of  each 
plant  when  the  total  cost  to  the  taxpayers  is  included.  C.  S.  Metcalf,  State 
Examiner  of  the  Bureau  of  Inspection  and  Supervision  of  Public  Offices, 
examined  the  municipal  water,  gas  and  electric  plants  in  1911  and  found 
them  all  losing  money.  His  figures  on  the  gas  plant  for  1909  are  as  fol- 
lows: Actual  revenue,  $46,277.80;  total  actual  expense,  $71,108.81;  loss  in 
taxes,  $2,221.80;  loss  to  city,  $27,052.01.  In  his  report  Mr.  Metcalf  said: 
"Two  and  a  half  years  ago  the  electric  light  plant,  which  was  built  in 
1903,  was  a  complete  wreck,  and  the  figures  obtained  from  careful  examina- 
tion into  the  cost  from  bond  issue  and  from  transfer  from  tax  levy,  showed 
for  the  life  of  this  plant,  fifteen  years,  a  cost  per  arc  lamp  of  $113,33, 
while  other  cities  furnished  by  private  plants  showed  a  cost  of  from  $55 
to  $75." 

' '  For  the  privilege  of  municipal  ownership  the  taxpayer  had  to  pay  the 

60 


interest  on  the  bonds,  the  sinking  fund  levy  for  the  retirement  of  the  bonds 
and  stood  a  tax  levy  each  year  for  street  lighting  nearly  as  great  as  the 
levy  would  have  been  had  the  city  purchased  its  electric  current  from  a 
private  corporation.5' 

An  investigation  made  in  1914  disclosed  that  although  the  city  had 
abandoned  its  gas  manufacturing  plant,  which  is  a  wreck,  and  purchased 
its  natural  gas,  the  losses  in  1913  on  this  service  came  to  over  $40,000, 
while  the  losses  on  the  electric  plant  were  $23,956.27  and  on  the  water- 
works $55,580.80. 

Hudson,  Massachusetts. — In  1911  the  receipts  of  the  plant  were  $22,- 
030.46  from  sale  of  energy.  The  total  cash  spent  during  the  year  was 
$27,792.72,  not  including  any  allowance  for  depreciation.  The  report  for 
1911  shows  the  loss  on  the  plant  since  establishment  to  be  $20,024.94.  The 
State  Commission  on  Gas  and  Electric  Light  gives  the  loss  as  $21,443.51. 
The  average  lighting  rate  is  twelve  cents  per  kilowatt  hour.  In  towns,  at- 
joining,  the  private  companies  charge  a  maximum  of  ten  cents  per  kilowatt 
hour.  The  large  manufacturers  refuse  to  patronize  the  city  plant  because 
of  high  power  rates. 

Huron,  Ohio. — The  city  books  do  not  give  any  record  of  the  cost  of  the 
municipal  electric  light  plant,  which  was  finally  abandoned  and  the  ma- 
chinery installed  in  the  waterworks.  The  1912  deficit  was  $7,717.61,  that 
of  1913  was  $11,506.78  and  for  the  first  half  of  1914  was  $4,596.69.  The 
deficits  average  about  150%  of  the  gross  revenue  from  private  consumers 
after  making  a  proper  credit  for  street  lighting  and  hydrants. 

Johnstown,  Ohio. — The  1913  deficit  on  operation  alone  was  $2,399.91. 
Allowing  a  credit  of  $675  for  street  lights  and  hydrants  and  including  the 
fixed  charges  and  expenses,  the  actual  deficit  was  $4,837.41. 

Kalamazoo,  Michigan. — In  1912  the  citizens  had  to  vote  $125,000  to  re- 
build the  municipal  lighting  plant  which  was  worn  out.  No  depreciation 
fund  was  available. 

Lalcewood,  Ohio. — Expert  accountants  found  the  cost  of  street  lights 
on  moonlight  schedule  to  be  $129,56  per  year  in  1905.  The  plant  was  sold 
in  1906  and  a  street  lighting  contract  made  at  $55  per  year. 

Langdon,  North  Dakota. — Cost  of  municipal  electric  plant,  $17,500; 
sold  for  $9,000  after  four  years'  operation;  loss  during  time  the  city  owned 
the  plant,  $17,500. 

Lawrence,  Michigan. — Gas  is  sold  for  $1.25  per  thousand  cubic  feet  and 
the  operating  expenses  alone  come  to  $1.37  per  thousand  cubic  feet.  In 
addition,  the  taxpayers  have  to  pay  the  interest,  sinking  fund,  and  depre- 

61 


elation  and  make  up  lost  taxes,  beside  paying  the  deficit  in  operating  ex- 
penses. 

Logansport,  Indiana. — In  seventeen  years  operation  up  to  1913  there 
was  a  surplus  in  only  one  year  which  was  apparently  secured  by  failing 
to  maintain  the  plant  properly.  Deducting  the  apparent  surplus  of  that 
year,  the  deficit  during  the  period  named  was  $297,869. 

Loudonmlle,  Ohio. — The  municipal  water  and  electric  plant  had  a  deficit 
of  $8,522.46  in  1913  and  in  addition  the  people  had  to  issue  $20,000  of 
bonds  to  repair  the  plants. 

Province  of  Manitoba,  Canada. — The  first  year's  operation  of  the  tele- 
phone system  under  government  ownership  (1911)  resulted  in  a  deficit  of 
$50,000  despite  an  advance  in  rates  o'ver  the  former  charges  of  the  Bell 
Company.  The  Government,  when  agitating  for  public  ownership,  promised 
reductions  in  rates  averaging  over  fifty  per  cent.  Instead  of  keeping  these 
promises,  it  was  found  that  the  Government  could  not  operate  even  at  the 
old  Bell  rates  and  there  has  been  an  advance  in  many  of  the  rates  instead 
of  a  reduction.  Government  officials  are  flooded  with  complaints  of  deteri- 
oration in  service  since  the  Province  took  over  the  system. 

Marietta,  Ohio. — Cost  of  street  lighting  supplied  by  the  municipal 
street  lighting  plant  on  a  moonlight  schedule,  $69.25  in  1913.  The  lights 
were  off  completely  for  several  months  owing  to  high  water.  A  private 
company  offered  to  do  the  lighting  for  $55  per  lamp  with  deductions  for 
outages,  so  the  city  is  losing  at  least  $14.25  per  lamp  through  municipal 
ownership. 

Marion,  Indiana. — Cost  of  street  lighting  per  lamp  per  year,  under 
municipal  management,  for  current  alone,  $35.88.  Cost  for  current  alone 
under  new  contract  with  private  company  $22.05  per  lamp  per  year,  making 
a  saving  to  the  city  of  $13.83  per  lamp  in  addition  to  the  reduced  rate  for 
commercial  lighting. 

Martin's  Ferry,  Ohio. — From  1908  to  1913  inclusive,  the  deficits  were 
nearly  fifty  per  cent,  of  the  total  revenue  from  private  consumers.  The 
total  deficits  during  the  six  years  investigated  amounted  to  $68,860  after 
allowance  of  from  $6,000  to  $8,000  a  year  for  street  lighting. 

McArthur,  Ohio. — After  allowing  over  $50  each  for  the  street  lights, 
which  burned  only  until  midnight  on  a  moonlight  schedule,  the  deficit  on 
the  operation  of  the  electric  plant  in  1913  was  over  200  per  cent,  of  the 
income  from  consumers. 

62 


Milan,  Ohio. — The  deficit  on  the  municipal  water  and  electric  plants  in 
1913  was  over  100  per  cent,  of  the  gross  revenue,  including  the  amounts 
paid  by  the  town  for  street  lights  and  hydrants. 

Moline,  Illinois. — The  city  was  able  to  save  over  $35  per  lamp  per 
year  in  addition  to  getting  improved  lamps,  by  giving  up  its  municipal 
electric  plant  and  making  a  contract  for  street  lamps.  The  plant  cost 
$25,000  and  was  sold  for  $7,900. 

Montpelier,  Indiana. — The  electric  light  plant  was  built  by  the  city  in 
1901  and  sold  for  $1.00  in  1905.  It  cost  $38,000.  The  plant  was  com- 
pletely worn  out. 

Murray  City,  Utah. — An  investigation  showed  that  the  plant  estimated 
to  have  cost  $60,000  had  cost  $85,459.08  and  that  $15,000  to  $25,000  would 
be  required  to  complete  it.  The  receipts  for  the  first  six  months,  including 
payment  for  street  lights,  were  $2,000  and  the  expenses  including  interest 
but  no  other  fixed  charges  were  $8,774.28,  making  a  loss  of  $6,774.28  during 
a  period  of  six  months. 

Muskogee,  Oklahoma. — An  investigation  made  by  the  Muskogee  Times 
Democrat  disclosed  the  fact  that  the  revenue  of  the  city  waterworks  for 
1913,  including  hydrants,  was  $87,203.70  while  the  expenses  were  $123,575. 
The  deficit  was  $36,371.23.  The  excessive  payroll  was  given  as  the  chief 
reason  for  the  deficit. 

Napanee,  Ontario. — In  1911  the  city  sold  its  municipal  electric  plant  to 
the  Seymour  Power  &  Electric  Company.  The  company  gives  continuous 
service  and  not  night  service  only.  It  reduced  the  price  of  arc  lamps  $15 
below  what  the  city  charged  itself,  reduced  the  price  of  tungsten  street 
lamps  $5.00  each  and  reduced  the  residence  rate  2  cents  per  kilowatt  hour. 

Nashville,  Tennessee. — The  report  for  the  year  1910  on  the  municipal 
light  plant  purports  to  show  that  the  total  cost  of  operating  the  system  was 
$63,821.37,  including  interest.  As  a  matter  of  fact,  the  actual  money  spent 
by  the  city  that  year  on  account  of  city  lighting  was  $105,891.58  which  did 
not  include  any  allowance  whatever  for  depreciation  nor  for  a  sinking  fund 
to  retire  the  bonds,  none  of  which  have  been  paid.  The  manager  states 
that  $500,000  has  been  put  into  the  plant.  Except  for  the  bonds  amounting 
to  $150,000,  all  this  money  has  come  out  of  the  general  tax  funds  in  addi- 
tion to  the  money  for  operation,  most  of  which  comes  from  taxes,  as  the 
plant  does  a  street  lighting  business  only.  Some  of  the  street  lighting  is 
paid  for  by  merchants. 

Nelsonville,  Ohio. — Deficit  on  waterworks  for  1913 — $9,851.11,  or  nearly 
200  per  cent,  of  the  total  income  from  consumers.  The  electric  plant  lost 

63 


$9,106.14  in  addition  to  the  payments  made  by  the  city  for  hydrants  and 
street  lights. 

Norristown,  Pennsylavnia. — In  1911  the  municipal  street  lighting  plant 
reported  the  cost  of  street  lamps  at  $39  per  year.  The  city's  accounting 
methods  are  indicated  by  the  fact  that  in  the  years  1908  and  1909,  repairs 
to  street  lamps  amounting  to  $57.70  per  lamp  were  capitalized  instead  of 
being  charged  as  interoperative  expenses. 

Norwood,  Ohio. — In  1913  the  deficit  on  the  electric  plant  was  $12,972.76, 
and  on  the  water  plant  over  $36,000,  after  giving  credit  for  such  public 
service  as  was  given  by  the  plants. 

Province  of  Ontario,  Canada. — A  Joint  Legislative  Committee  of  the 
State  of  New  York  in  1913  made  a  thorough  analysis  of  the  results  of 
state  and  municipal  ownership  of  the  hydro-electric  lighting  system  in 
Ontario  which  derived  its  power  from  Niagara.  It  reported  that  the 
Ontario  Hydro-Electric  Commission  would  be  losing  at  least  $200,000  a 
year  in  its  power  transmission  scheme  if  the  books  were  kept  properly. 
The  taxpayers  aJso  had  to  meet  the  expenses  of  the  Commission,  amounting 
to  $173,090,  which  have  never  been  included  in  the  expenses  of  operating 
the  system. 

Oxford,  Ohio. — The  municipal  water  and  electric  plants  failed  to  earn 
enough  to  keept  the  plants  in  good  condition  and  they  became  so  run  down 
that  in  1914  it  was  necessary  to  spend  $32,500  to  rehabilitate  the  properties. 
The  town  charges  itself  $70  per  year  each  for  arc  lights  burning  on  a  moon- 
light schedule  to  midnight  only. 

Pittsburgh,  Pennslyvania. — In  1911,  according  to  the  report  of  the 
Board  of  Water  Assessors,  the  deficit  in  operating  the  municipal  water- 
works amounted  to  $337,463.54,  not  including  sinking  fund  or  depreciation. 
Mayor  Magee  recommended  an  increase  in  rates. 

Pittsfield,  Illinois. — The  Mayor  is  quoted  as  follows :  ' '  Cheaper  to  pay 
the  Pittsfield  Electric  Company  than  do  it  ourselves.  We  ran  it  ourselves 
for  several  years  and  have  had  it  run  by  contract  at  least  five  years,  saving 
money  by  contracting  it  to  outsiders." 

Pullman,  Washington. — The  city  council  in  1907,  in  its  resolution  to 
sell  the  municipal  light  plant  at  less  than  half  its  cost,  said :  ' '  The  electric 
light  plant  owned  by  the  City  of  Pullman  has  proven  to  be  a  burden  to 
the  taxpayers  of  the  city  and  the  same  cannot  be  operated  by  such  city  so 
as  to  repay  the  cost  and  expense  of  operation. " 

Heading,  Ohio. — Failure  to  include  fixed  charges  in  the  accounts  of 
the  municipal  water  and  electric  plants  misled  the  people  for  many  years 

64 


into  thinking  the  plants  were  successful.  An  investigation  made  in  1914 
showed  that  the  losses  of  the  plants,  after  interest,  sinking  fund,  deprecia- 
tion and  lost  taxes  were  included,  amounted  to  $12,505.91  in  1913. 

Reading,  Massachusetts. — After  several  years  experience  with  an  electric 
light  plant,  the  voters  refused  in  1911  to  undertake  the  municipal  owner- 
ship of  a  gas  plant  by  reason  of  the  losses  incurred  in  operating  the  electric 
plant.  The  management  of  the  electric  plant  had  been  very  aggressive, 
yet  the  receipts  from  customers  amounted  to  only  $33,962.38  while  the  cost 
of  running  the  plant  was  $45,125.09.  The  taxpayers  had  to  make  up  the 
losses. 

Red  Bud,  Illinois. — ' '  Expenses  of  plant  from  May  1,  1909,  to  May 
1,  1910,  including  electrician's  salary,  $4,660.36.  Income  from  fiscal  year, 
$1,988.58.  We  have  no  published  itemized  report.  This  was  published  in 
City  Clerk's  bulked  report  last  May." 

Seattle,  Washington. — In  1911  the  Taxation  Committee  of  the  Seattle 
Chamber  of  Commerce  reached  the  following  conclusions  and  embodied 
them  in  a  report :  ' '  The  plant  collects  direct  from  the  taxpayers  an  average 
of  $181  per  kilowatt  per  year  for  street  lighting  while  private  consumers 
are  getting  the  service  at  from  $45  to  $80  per  kilowatt  per  year  The 
street  lighting  requires  twelve  per  cent,  of  the  maximum  demand  at  the 
power  plant  and  the  taxpayers  pay  thirty-two  per  cent,  of  the  total  gross 
receipts  of  the  plant.  The  plant  cost  $3,500,000  and  is  not  making  enough 
to  pay  operating  expenses  and  fixed  charges  even  though  the  city  itself 
contributes  a  third  of  the  gross  revenue.  In  1912  the  private  company 
offered  to  do  the  street  lighting  at  the  same  rate  at  which  they  furnished 
current  to  commercial  customers.  This  would  have  resulted  in  a  saving  of 
$127,000  a  year,  but  was  rejected.  The  management  of  the  plant  publicly 
admits  that  it  grants  discriminatory  rates  to  those  in  a  position  to  demand 
them." 

Sebewaing,  Michigan. — When  the  village  went  into  municipal  owner- 
ship in  1911  it  was  stated  that  $10,000  would  build  a  suitable  plant.  The 
cost  was  $17,000,  and  the  tax  rate  was  advanced  from  three-fourths  of  one 
per  cent,  to  1%  per  cent,  the  year  after  the  plant  started  operation. 

Sharon,  Wisconsin. — In  a  case  affecting  the  municipal  water  and  light 
plant  of  Sharon,  before  the  Eailroad  Commission  of  Wisconsin,  decided 
January  11,  1912,  the  Commission  says:  "With  respect  to  the  rates  for 
water  and  gasoline  gas,  the  statement  of  earnings  and  expenditures  shows 
that,  after  paying  the  expenses  of  operation,  excluding  interest  charges 
upon  the  funded  indebtedness,  there  is  a  large  deficit  in  both  the  gas  and 
water  departments  for  each  of  the  three  years  given.  Inspection  of  the 

65 


expenditures  discloses  that  no  allowance  for  depreciation,  as  such,  has  ever 
been  made  by  the  village." 

Shepherdstown,  West  Virginia. — At  letter  from  the  Mayor  says :  ' '  The 
town  electric  plant  was  installed  in  1901  at  a  cost  of  $4,800  and  sold  for 
$3,200.  The  reasons  for  selling  were  that  no  fund  was  accumulated  for 
depreciation  and  the  town  could  not  afford  to  pay  for  its  proper  superin- 
tendence, and  almost  every  year  there  was  a  change  of  officials.  The  rates 
were  too  low. ' '  The  plant  was  sold  in  1907. 

Sioux  Falls,  South  Dakota. — This  plant  was  abandoned.  In  1907  the 
city  auditor  wrote :  ' '  Reasons :  Bad  management  and  politics  made  cost 
of  running  very  high.  Cost  per  light  could  never  be  figured  out  on  account 
of  bad  bookkeeping  and  failure  to  seperate  operation  and  construction. ' ' 

Spokane,  Washington. — An  investigation  made  in  1913  disclosed  the 
fact  that  the  waterworks  deficit  for  1912  was  $225,329.71,  which  did  not 
include  services  of  other  city  departments,  legal  expense,  of  which  there 
was  a  great  deal,  or  lost  taxes.  The  gross  revenue,  including  running 
services,  was  $472,972.75,  while  the  cost  of  operation,  including  interest, 
depreciation  and  sinking  fund,  came  to  $698.302.46.  The  deficit  was 
largely  due  to  the  practice  of  issuing  bonds  to  meet  the  cost  of  operation 
and  depreciation,  and  to  the  political  influences  which  governed  the  plant 
for  many  years. 

Toronto,  Ontario. — The  city  auditor,  reporting  on  the  operation  of  the 
municipal  electric  distribution  system,  which  purchases  power  from  the 
Ontario  Government  Hydro-Electric  System,  found  that,  at  the  close  of 
business  June  30,  1912,  the  system  had  lost  $290,639.65  after  about  two 
years'  operation.  Too  low  rates  and  too  many  employees  were  given  as 
the  reasons  for  the  shortage. 

Vancouver,  Washington. — In  June,  1902,  the  municipal  electric  plant, 
costing  $70,000,  sold  for  $11,000,  including  a  franchise  in  which  the  pur- 
chasers agreed  to  give  lower  rates  than  had  ever  been  given  by  the  city. 
Even  with  high  prices,  the  plant  had  always  lost  money. 

Wakefield,  Massachusetts. — According  to  the  report  of  the  municipal 
gas  and  electric  department  for  1911,  the  town  had  always  paid  more  out 
of  taxes  for  the  maintenance  of  the  municipal  plant  than  it  would  have 
had  to  pay  for  lighting  by  a  private  company.  The  average  annual  amount 
taken  from  taxes  up  to  1903  was  $13,074,  while  the  cost  .of  lighting  by  a 
private  company  was  estimated  at  $8,500  a  year.  From  1907  to  1911  the 
average  taken  from  the  tax  levy  amounted  to  $15,540  per  year.  In  1913 
the  town  decided  to  shut  down  its  electric  plant  and  purchase  current. 

66 


Williamsburg,  Ohio. — The  1913  deficit  was  $3,695.03,  after  allowing 
credit  for  street  lights. 

WillougKby,  Ohio. — In  1910  the  municipal  electric  plant,  after  only  a 
few  years'  operation,  broke  down  and  left  the  town  in  darkness  for 
months.  It  was  found  that  the  plant  was  worn  out  and  not  worth  repair- 
ing. A  contract  was  therefore  made  with  the  company.  The  town's  loss 
through  municipal  ownership  was  about  $75,000. 

Wilmington,  Ohio. — The  municipal  light  plant  was  sold  in  1903,  after 
ten  years'  operation,  for  $12,000.  There  had  been  $110,000  spent  on  the 
plant,  but  it  was  a  ' '  complete  wreck, ' '  and  was  giving  only  intermittent 
service.  The  people  were  so  disgruntled  that  they  refused  to  sanction 
further  expenditure.  The  popular  vote  in  favor  of  the  sale  was  896  to  34. 

Winfield,  Kansas. — The  report  of  the  municipal  electric  light  plant  for 
1911  showed  total  receipts  for  current  amounting  to  $25,573.72  and  expenses 
amounting  to  $27,574.26  without  any  allowance  for  interest,  depreciation 
or  sinking  fund.  A  book  charge  of  $6,737.90  is  made  for  depreciation  "but 
no  money  is  provided  to  take  care  of  the  charge. 

Winnipeg,  Manitoba. — The  total  revenue  of  the  municipal  electric  plant 
for  the  year  ending  April  30,  1913,  was  $475,509.57,  while  the  expenses, 
including  interest,  sinking  fund  and  depreciation  were  $529,442.60,  accord- 
ing to  the  plant's  report,  making  the  deficit  $52,024.88.  No  account  is 
made  of  services  rendered  free  by  other  city  departments,  lost  taxes,  etc., 
which,  if  included,  would  increase  the  deficit.  The  second  annual  report 
of  the  Manitoba  Public  Utilities  Commission  shows  that  for  the  year  ending 
November  30,  1913,  the  municipal  electric  light  plant  had  a  deficit,  includ- 
ing fixed  charges,  of  $83,432.90,  while  the  private  company  operating  in 
competition  with  the  municipal  plant  had,  after  meeting  fixed  charges,  a 
net  revenue  of  $373,677.26. 

Winthrop,  Massachusetts. — An  official  committee,  representing  the  town, 
in  1912  investigated  and  reported  upon  the  question  of  municipal  owner- 
ship. It  found  that  if  the  town  operated  its  own  plants  it  would  be  neces- 
sary to  raise  the  price  of  gas  and  electricity  from  the  present  rate  of  90 
cents  per  1,000  cubic  feet  of  gas  and  11  cents  per  kilowatt  hour  for  elec- 
tricity to  approximately  $1.30  and  14  cents  respectively.  It  said:  "If  your, 
committee  had  been  able  to  find  from  its  investigation  that  the  town  could 
sell  -electricity  at  11  cents  per  kilowatt  hour  or  gas  at  90  cents  per  1,000 
cubic  feet,  or  if  your  committee  could  have  found  by  its  investigation  that 
under  municipal  ownership  electricity  could  be  sold  to  private  consumers 
a  cent  per  kilowatt  hour  cheaper  than  it  could  be  obtained  from  the  com- 
pany, such  a  slight  advantage  as  that  would  not  seem  to  justify  the  hazard 

67 


and  risk  and  the  upsetting  of  town  affairs  that  would  be  incident  to  the 
years  of  litigation  which  would  follow  the  vote  for  municipal  ownership. " 

Wyandotte,  Michigan. — This  plant  has  never  paid  interest  or  sinking 
fund  on  its  bonds,  has  been  rebuilt  several  times  during  its  life  of  twenty- 
two  years,  the  reconstruction  funds  in  each  case  coming  out  of  bond  issues 
instead  of  being  charged  to  operating  expenses,  and  has  been  subject  to 
political  influences  most  of  the  time,  according  to  the  statement  of  a  former 
official  made  in  1913. 

Xenia,  Ohio. — The  municipal  light  plant  was  sold  in  1896  for  $2,500, 
about  one-tenth  of  its  original  cost.  After  the  plant  was  sold  a  contract 
was  made  for  street  lighting  which  effected  a  saving  of  $40  per  year  per 
lamp. 


68 


Appendix  €. 

DEFUNCT  MUNICIPAL  LIGHTING  PLANTS.* 

The  277  cities,  towns  and  villages  named  below  comprise  but  a  part  of 
those  which  after  a  trial  of  municipal  ownership  and  operation  of  electric 
lighting  plants,  have  ceased,  in  whole  or  in  part,  to  operate  the  plants.  In 
practically  all  these  cases  municipal  operation  was  undertaken  in  the 
belief  that  the  community  would  obtain  electric  service  at  materially  less 
cost  than  if  obtained  from  private  companies.  Experience  demonstrates 
that  this  belief  was  mistaken.  Most  of  the  municipalities  sold  or  scrapped 
their  plants  at  a  heavy  sacrifice,  and  thereafter  obtained  from  private  com- 
panies service  at  materially  less  cost.  In  some  cases,  municipalities  closed 
down  their  generating  plants,  but  continued  to  operate  their  distributing 
plants,  buying  the  current  from  private  companies.  These  cases  are  indi- 
cated by  an  asterisk  (*). 

ALABAMA  FLORIDA 

Columbia  West  Tampa 
Fort  Deposit 

GEORGIA 

ARKANSAS  *Barnesville 

*Argenta  Carrollton 

England  *Dalton 

Nashville  *East  Point 

Edgewood 

CALIFORNIA  *Forsyth 

Berkeley  *Griffin 

Gilroy  *  Jackson 

Lemoore  *Jonesboro 

Modesta  *Lawrenceville 

*  Santa  Clara  *Monroe 

*Ukiah  *Monticello 

*Newnan 

CONNECTICUT  Pelham 

*Jewett  City  *Winder 
*Norwich 


*  This  list  is  abstracted  from  ' *  A  List  of  Defunct  Municipal  Lighting 
Plants"  compiled  by  Arthur  Hastings  Grant.  Since  its  issuance 
numerous  municipalities,  particularly  in  Massachusetts  and  Michigan, 
have  ceased  to  operate  generating  plants  and  now  buy  current  at 
less  than  former  cost  of  municipal  production.  Mr.  Grant's  com- 
pilation summarizes  the  causes  of  abandonment  in  each  of  the  cases 
cited,  as  shown  by  official  records  and  statements,  and  other  sources. 


IDAHO 
*Weiser 

ILLINOIS 

Braidwood 
Buckley 
Clayton 
Coal  City 
Cuba 

*East  Dubuque 
Elgin 
Findlay  ' 
Galena 
Girard 
Hampshire 
Joliet 
Kansas 
Kinmundy 
La   Grange 
Lockport 
Marengo 
Moline 
Neponset 
*Oglesby 
Pittsfield 
Princeville 
Sandwich 
Sycamore 
Table  Grove 
Wheaton 

INDIANA 
Ashley 
Bourbon 
Brownstown 
Butler 
Churubusco 
Dunkirk 
English 
Goodland 
Jonesboro 
Lowell 
Madison 
*Marion 
Mentone 
Michigan  City 
Montpelier 
Muncie 
New  Carlisle 
Sheridan 
Summitville 
Wabash 
•Walkerton 


IOWA 
*Afton 
Audubon 
Chari+on 
Clarion 
Colfnx 
Delta 
Earlville 
Fayette 
*  Grimes 
Leon 
Lisbon 
Lyons 
Marcus 
Marshalltown 
*Pocahontas 
Sioux  Rapids 
Spirit  Lake 

KANSAS 
Bucklin 
Council  Grove 
Emporia 
*Hanover 
La  Crosse 

KENTUCKY 
Hickman 
Midway 
Murray 
Somerset 

LOUISIANA 
Mansfield 

MARYLAND 

*  Cumberland 
Kockville 

MASSACHUSETTS 
Hull 

Millers  Falls 
Needham 
*Wakefield 
West  Springfield 

MICHIGAN 

Charlotte 

Dexter 

East  Tawas 
*Escanaba 
*Fremont 

*  Gladstone 


MICHIGAN    (Continued) 
Grand  Ledge 
Hart 
Mendon 
*North  Branch 
Northville 
Bichmond 
Eomeo 
Shelby 
* Shepherd 
South  Lyon 
Tawas  City 
Trenton 
Zeeland 

MINNESOTA 
*Buffalo 
*Delano 
*Duluth 
*East  Grand  Forks 

Elbow  Lake 

Fulda 

Graceville 
*Kasota 
*Lake  City 

Mahnomen 

Paynesville 

Perham 
*St.  James 

St.  Peter 
*Shakopee 

South  Stillwater 

Tracy 

Winnebago 

MISSISSIPPI 

Crystal  Springs 

Ellisville 

luka 

Pontotoc 

Poplarville 

MISSOURI 

Brunswick 

Burlington  Junction 

Dexter 

Huntsville 

Lawson 
*Linneus 
*Monett 
*Pierce  City 
*St.  Charles 

Savannah 


MONTANA 
Town  send 

NEBRASKA 
*Friend 
*Hampton 
*University   Place 
Valley 
*Wood  Eiver 

NEW  JERSEY 
Allenhurst 

NEW  HAMPSHIRE 
Peterboro 

NEW  YORK 

*  Bergen 
Cape  Vincent 
Charlotte 
Frankfort 
Gravesend 
Green  Island 
Hempstead 

*Ilion 
Le  Eoy 

*  Mohawk 
tNew  York  City 
*Skanea  teles 

Waddington 
Wappingers  Falls 

NORTH  CAROLINA 

Burlington 
*Concord 
*Fayetteville 
*Gastonia 

Goldsboro 
*High  Point 
*Lexington 
*Mooresville 
*Mount  Olive 
*Statesville 

Wadesboro 

NORTH  DAKOTA 
Casselton 
Langdon 

OHIO 

*Amherst 
Athens 
Beverly 
Bowling  Green 


OHIO   (Continued) 

Bradford 

Cridersville 

Findlay 
*Hamilton 
*Hubbard 

Lakewood 

Madisonville 

Milan 

Milford  Center 
*Niles 

Osborn 

Portsmouth 
*St.  Qairsville 

*  South  Vienna 
Tiffin 
Toledo 

Upper  Sandusky 
*Westerville 
Willoughby 
Wilmington 
Xenia 

OKLAHOMA 
*Durant 
Lehigh 

OREGON 
Hillsboro 
Lakeview 

PENNSYLVANIA 
*Ellwood  City 
Emaus 
Forty  Fort 
Lehighton 
McAdoo 
Shickshinny 
*Souderton 
West  Newton 

SOUTH  CAROLINA 
Batesburg 

*  Cher  aw 
Chester 

*Laurens 

SOUTH  DAKOTA 

*  Sioux  Falls 


TENNESSEE 
Dayton 
Huntington 
*Lebanon 
Lewisburg 
South  Pittsburgh 
Winchester 

TEXAS 

*Fort  Worth 
Honey  Grove 
Itaska 
McKinney 

VIRGINIA 

Alexandria 

Buena  Vista 

Christiansburg 

Fredericksburg 

Pulaski 

Wytheville 

VERMONT 
*NorthfieJd 

WASHINGTON 

Ballard 

Chehalis 

Kent 
*Port  Angeles 

Pullman 

Vancouver 
*Waterville 

WEST  VIRGINIA 
Harrisville 
Shepherdstown 
Wheeling 

WISCONSIN 
*Boscobel 
*Cuba  City 

Hudson 
'Lake  Mills 
*Mazomanie 
*New  Richmond 
*Sauk  City 

Washburn 


tWilliamsburg  Bridge  Lighting  Plant 


Appendix  D. 

COLUMBUS,  OHIO. 

Allusion  has  been  made  in  the  body  of  this  report  to  the  tendency 
of  municipalities  to  delay  improvements  necessary  for  essential  purposes, 
to  change  policies  with  change  of  management,  and  thereby  to  interfere 
with  the  effective  operation  of  plants.  It  has  also  been  stated  that 
muncipalities  generally  fail  to  consider  in  their  cost  accounting  essential 
items  of  deferred  costs.  Columbus,  Ohio,  supplies  an  example  of  both 
these  tendencies. 

The  Bureau  of  Municipal  Eesearch  of  New  York  was  employed  by  the 
city  of  Columbus,  in  1916,  to  make  a  survey  of  the  municipal  activities 
of  that  city.  Following  is  an  abstract  of  statements  of  fact  contained  in 
the  Bureau's  report: 

In  April,  1911,  bonds  to  the  amount  of  $75,000  were  sold  to  provide 
two  new  lighting  substations  and  a  considerable  extent  of  subsidiary  equip- 
ment. ' '  It  was  believed  that  the  establishment  of  the  two  substations  and 
the  erection  of  high-tension  main  distribution  feeders  would  result  in  a 
more  economical  utilization  of  electrical  current  by  the  introduction  of 
electrical  devices  tending  to  increase  the  power  factor. 

"Although  five  years  have  elapsed,  the  plan  has  not  been  carried  out 
to  completion,  and  although  the  substations  have  been  erected  they  have 
not  been  placed  in  operation  as  yet.  The  original  bond  issue  was  not 
sufficient  to  complete  the  erection  of  the  building  and  to  purchase  and 
install  the  necessary  transmission  lines  and  other  electrical  transmission 
equipment.  Bonds  in  the  amount  of  $35,000  were  issued  in  1912  to  com- 
plete the  rearrangement  of  the  distribution  system  and  replace  certain 
old  lamps  and  to  make  other  readjustments  of  the  lighting  facilities. 

"After  the  adoption  of  the  original  plan,  the  management  of  the 
lighting  plant  changed;  the  change  was  accompanied  by  a  change  in 
policy  and  a  rearrangement  and  readjustment  of  the  already  adopted 
plan."  *  *  * 

Thus  during  at  least  five  years  the  lighting  plant  suffered  the  loss  of 
interest  charges  upon  an  idle  investment  of  from  $75,000  to  $110,000,  and 
the  more  economical  utilization  of  the  product  was  not  provided  for. 

' l  The  existing  situation  in  connection  with  the  operation  of  the 
lighting  plant  and  distribution  system,  together  with  the  work  in  course 
of  construction,  is  highly  undesirable.  The  Superintendent  of  the  lighting 
plant  is  responsible  to  the  Director  of  Public  Service  for  the  operation  of 

73 


the  existing  system.  On  the  other  hand,  it  is  difficult  to  fix  definitely  the 
responsibility  of  the  Consulting  Engineer  in  charge  of  the  completion  of 
the  substations  and  the  extension  of  the  residential  lighting  system.  *  *  * 
"The  vacillating  policy  which  has  existed  during  the  last  five  years, 
or  since  the  original  inception  of  the  new  distribution  plan,  indicates  that 
the  present  policy-determining  and  administrative  methods  in  connection 
with  the  function  of  electrical  generation  and  distribution  are  eminently 
unsatisfactory. 

"The  city,  through  its  council,  is  about  to  embark  upon  an  extensive 
increase  in  its  commercial  customers,  and  it  is  proposed  to  solicit  private 
residential  lighting  consumers.  This  work  is  being  undertaken  without 
any  definite  policy  as  to  the  extent  or  manner  of  solicitation  and  there  is 
no  assurance  that  future  administrations  will  not  revoke  the  present  policy 
and  determine  to  abandon  the  residential  lighting  field. ' ' 

The  report  elaborates  upon  the  unsuitability  of  the  existing  govern- 
mental machinery  of  Columbus  properly  to  deal  with  so  highly  a  specialized 
function  as  electrical  lighting.  It  recommends  a  complete  reorganization  of 
machinery  and  methods  of  control  and  concludes : 

"It  is  only  through  the  establishment  of  such  a  Board  that  the  city 
of  Columbus  can  ever  hope  to  obtain  a  continuity  of  policy  respecting  all 
matters  electrical  and  to  obviate  the  repetition  of  a  situation  similar  to 
that  which  now  exists." 

EFFECT  OF  EESIDENTIAL  CONSUMERS  UPON   COST. 
Upon  this  point  the  report  says: 

"The  lighting  plant  is  competing  with  the  private  electrical  company 
on  a  rate  basis  for  power  consumption  purposes  and  all  additional  day 
load  power  consumers  which  the  plant  may  be  able  to  obtain  will  tend  to 
flatten  out  the  average  daily  load  curve.  If  consistently  continued,  this 
equalizing  of  the  electrical  load  will  tend  to  approach  uniform  twenty-four 
hour  production  with  a  consequent  reduction  of  fixed  charges  on  all  generat- 
ing and  transmission  equipment,  boiler  room  auxiliaries  and  structure. 

"By  adding  the  residential  lighting  load,  the  peak  load  of  the  plant 
will  be  increased  for  the  reason  that  current  consumption  for  residential 
lighting  purposes  will  be  low  through  all  hours  of  the  day  except  5  P.  M. 
to  12  midnight,  and  any  additional  equipment  which  may  be  necessary  to 
fill  out  the  additional  peak  load  will  be  practically  idle  between  the  hours 
of  12  midnight  and  5  P.  M.  of  the  day  following.  Since  the  street  lighting 
load  is  concurrent  with  the  residental  lighting  load  up  to  10:30 
P.  M.,  when  a  slight  falling  occurs  due  to  the  shutting  down 
of  four-fifths  of  the  cluster  lighting  system,  and  since  the  residential 

74 


lighting  load  will  practically  cease  some  time  prior  to  12  o'clock  midnight, 
it  follows  that  the  addition  of  the  residential  lighting  load  will  increase 
the  fixed  charge  per  total  K.W.  output  of  the  plant.  Unless  the  rates  are 
very  carefully  adjusted  to  take  this  fact  into  account,  those  utilizing  city 
power  for  private  residential  lighting  will  receive  a  portion  of  this  service 
at  the  expense  of  the  taxpayers  of  the  city. 

' '  The  policy  inaugurated  and  determined  upon  whereby  private  resi- 
dential lighting  customers  will  be  solicited  is  questionable  in  the  extreme 
and  it  is  suggested  that  the  city  might  have  more  profitably  decided  upon 
a  campaign  for  the  solicitation  of  power  consuming  customers  between  the 
hours  of  6  A.  M.  and  6  P.  M." 

In  effect,  the  foregoing  paragraph  emphasizes  the  well-known  fact 
that  the  addition  of  a  considerable  number  of  small  residential  consumers 
tends  very  materially  to  force  an  enlargement  of  the  generating  plant,  with 
a  consequent  increase  in  capital  charges,  and  also  largely  to  increase  the 
ratio  of  distribution  costs.  Hence  a  plant  which  is  able  only  to  cover  its 
costs  by  supplying  large  power  and  business  consumers  at  a  low  rate  is 
practically  certain  to  incur  a  material  deficit  if  to  its  existing  power  and 
business  customers  it  adds  a  large  number  of  small  residential  consumers. 
The  cost  of  supplying  the  latter  is  relatively  very  great  and  can  only  be 
met  by  a  material  increase  in  the  rates  of  charge. 

FINANCIAL  STATEMENTS  AND  STATISTICS  OF  LIGHTING  PLANT  ARE  OPEN  TO 

CRITICISM. 

' '  The  municipal  lighting  plant  prepares  a  balance  sheet,  profit  and  loss 
account  and  operation  statement  each  year.  The  last  available  statement 
at  the  time  of  the  survey  was  for  the  year  ended  December  31,  1915.  This 
shows  the  assets  and  liabilities  of  the  lighting  plant  in  detail  and  is  a 
more  informing  financial  statement  than  is  prepared  by  any  other  depart- 
ment of  the  city  government.  As  to  the  accuracy  of  the  figures  contained 
in  this  report,  no  statement  can  be  made  for  the  reason  that  an  audit  is  in 
no  sense  a  part  of  a  survey. 

' '  No  provision  has  been  made  in  the  account  to  cover  the  amortization 
charges  on  the  $902,500  indebtedness  on  the  lighting  plant  on  December 
31,  1916  (f).  The  sinking  fund  installment  necessary  to  redeem  these 
bonds  at  maturity,  calculated  on  a  3^.  per  cent,  actuarial  basis,  would 
amount  to  over  $20,000  per  annum.  Although  the  accounts  of  the  lighting 
division  do  not  show  this  item,  it  is  carried  as  an  expense  of  the  city  and 
provided  for  by  the  trustees  of  the  sinking  fund. 

"In  the  1915  operating  statement  there  is  a  reserve  for  depreciation 
of  approximately  $31,000  in  addition  to  maintenance  charges  of  between 
$13,000  and  $14,000  covering  repairs  to  the  power  plant,  the  distribution 

75 


system  and  the  municipal  and  commercial  equipment.  In  the  year  1913 
approximately  $41,000  were  set  aside  for  depreciation,  and  for  the  year 
1914,  over  $45,000.  For  both  years  the  depreciation  was  figured  at  a 
flat  rate  of  5  per  cent.  It  will  be  noted  that  although  the  city  has  spent 
a  considerable  sum  on  construction  and  extension  work  during  the  past 
two  years,  the  amount  set  aside  for  depreciation  was  reduced  by  approxi- 
mately one-third  in  1915.  The  adequacy  of  the  reserve  for  depreciation 
cannot  be  substantiated  for  the  reason  that  the  original  cost  of  property 
was  not  available  at  the  time  the  survey  was  made.  Consequently,  only  an 
estimate  can  be  made  as  to  the  amount  which  should  be  set  aside  from 
time  to  time  if  a  conservative  reserve  is  to  be  established  to  meet  deprecia- 
tion and  obsolescence. 

"It  should  be  noted  also  that  no  liability  for  accounts  payable  is 
shown  on  the  balance  sheet.  Without  a  more  detailed  investigation  than 
can  be  expected  on  a  survey,  it  is  not  possible  to  state  definitely  whether 
all  outstanding  liabilities  were  included  in  the  statements  for  1915.  The 
fact  that  no  item  appears  as  a  liability  on  the  balance  sheet  in  respect  to 
accounts  payable  would  presuppose  that  no  provision  was  made  for  out- 
standing accounts  before  closing  the  books  for  the  year  ended  December 
31,  1915. 

"Notwithstanding  the  fact  that  no  charge  in  respect  to  the  amortiza- 
tion of  the  bonded  indebtedness  appears  in  the  profit  and  loss  account,  the 
lighting  plant  shows  only  the  sum  of  $216.41  profit  for  the  year  1915,  which 
may  be  turned  into  a  loss  if  all  outstanding  liabilities  at  the  end  of  the 
fiscal  year  under  review  have  not  been  included. 

"The  statement  of  bonds  outstanding  does  not  agree  with  the  records 
of  the  sinking  fund  trustees  owing  to  the  omission  of  a  series  of  electric 
lighting  supply  (4  per  cent.)  bonds  amounting  to  $18,000  issued  in  1905, 
due  1935. " 

While,  therefore,  the  Columbus  lighting  plant  appeared  in  1915  to  be 
only  self-supporting,  this  result  was  reached  by  scaling  down  the  deprecia- 
tion reserve  from  $45,000  to  $32,000  and  the  probable  omission  from  the 
liabilities  of  outstanding  unpaid  accounts  and  by  failure  to  include  the 
sinking  fund  payments  as  an  element  of  lighting  cost.  If  these  items  be 
included  (such  inclusion  in  Massachusetts  being  required  by  law)  the  plant 
would  show  a  substantial  deficit;  and  a  rate  materially  above  that  of  the 
competing  private  companies  for  the  class  of  service  under  discussion 
would  be  necessary.  If  a  considerable  number  of  small  residential  con- 
sumers be  added,  as  is  contemplated,  the  loss  would  be  still  further  increased 
unless  the  rates  be  correspondingly  advanced.  As  a  matter  of  fact,  the 
city  of  Columbus  has  since  taking  on  the  residential  business  found  it 
necessary  to  adopt  the  latter  alternative  and  increase  its  residential  rates 
to  five  cents  per  K.W.  hour. 

76 


Appendix   E. 

MISLEADING  FINANCIAL  ACCOUNTS  OF  MUNICIPAL  LIGHTING 
AND  WATER  PLANTS. 

Allusion  has  been  made  in  the  foregoing  report  to  the  frequency  of 
misleading  and  incomplete  public  accounting  which,  by  omitting  from  the 
published  financial  accounts  of  lighting  and  water  plants  important  items 
and  deferred  and  indirect  costs,  often  for  a  time  delude  communities  into 
the  belief  that  the  public  plants  are  financially  prosperous,  when  in  fact 
they  are  heavy  losers. 

These  omitted  costs  paid  from  other  funds,  and  seldom  appearing  in 
the  plant  accounts  are: 

Interest  payment  on  bonds  issued  for  plant; 

Sinking  fund   payments; 

Depreciation  losses;    and 

Loss  of  taxes  on  plant. 

When  these  are  added  to  the  operating  cost,  the  apparent  profit  usually 
shown  by  incomplete  municipal  accounts  is  almost  invariably  converted 
into  a  large  deficit. 

The  tendency  to  delusive  financial  showings  in  the  case  of  municipal 
plants  is  general.  To  illustrate  it,  the  public  accounts  of  most  of  the 
municipal  plants  in  Oklahoma  are  summarized  below. 

In  1915  Harold  V.  Bozell,  Director  of  the  School  of  Electrical  Engineer- 
ing, University  of  Oklahoma,  made  a  personal  survey  of  most  of  the  prin- 
cipal municipal  light  and  water  plants  in  Oklahoma.  The  results  of  his 
study  were  embodied  in  a  published  report  entitled,  "Data  on  Municipal 
Plant  Operation  in  Oklahoma."  From  Mr.  BozelPs  report  we  have  ab- 
stracted the  financial  reports  of  the  several  municipal  plants  as  shown  by 
the  official  accounts. 

These  accounts  usually  comprise  only  a  statement  of  receipts  from 
operation,  and  of  operating  expenses.  These  income  accounts  are  sum- 
marized in  the  following  tables.  In  each  case  there  have  been  added  the 
items  of  expenditure  omitted  from  the  accounts  of  the  public  plants,  and 
in  each  case  a  material  deficit  is  shown  by  the  accounts  as  thus  corrected. 
Owing  to  the  insufficient  data  afforded  by  the  accounts,  a  fully  accurate 
analysis  is  not  practicable,  but  the  results  are  fair  approximations. 

The  interest  charges  are  computed  from  the  amount  of  the  outstand- 
ing bonds  at  the  rate  of  interest  actually  paid.  The  depreciation  has  been 

77 


computed  at  the  uniform  rate  of  5  per  cent.,  which,  in  view  of  the  insufficient 
maintenance  of  many  of  the  plants,  is  a  low  rate.  The  sinking  fund  charges 
have  been  computed  upon  the  actuarial  basis,  which  assumes  annual  pay- 
ments proportioned  to  the  life  of  the  bonds  and  annual  reinvestment  of 
the  fund  and  accumulated  interest — a  method  which  is  seldom  followed  in 
small  communities.  This  method,  however,  shows  the  minimum  which 
would  be  required  for  a  sinking  fund.  The  allowances  fo:  value  of  service 
supplied  to  the  municipalities  are  estimated  on  the  number  of  street  lights 
and  hydrants,  allowing  $50  for  each  arc  light,  $25  for  tungsten  series,  and 
$50  for  hydrants,  the  rates  charged  on  the  books  of  several  of  the  munici- 
palities, but  materially  higher  than  charged  by  several  private  companies 
in  the  same  locality. 

The  item  of  tax  losses,  which  should  properly  be  included,  has  been 
omitted  by  reason  of  inability  to  ascertain  the  full  value  of  the  plants  and 
the  local  tax  rate.  If  this  item  could  be  ascertained  and  included,  the 
extent  of  the  deficit  would  be  correspondingly  increased.  With  one  excep- 
tion, these  municipalities  operate  bo'th  light  and  water  plants  and  do  not 
segregate  their  accounts. 

The  maximum  rates  for  lighting  range  from  10  to  16  cents,  and  the 
minimum  rates  from  5  to  10  cents,  per  kilowatt  hour.  To  make  the  plants 
self-supporting,  it  would  be  necessary  in  all  but  a  few  cases  to  increase 
the  rates  to  the  extent  of  from  50  to  100  per  cent,  and  in  some  cases  even 
more.  Except  where  indicated,  the  accounts  cover  both  light  and  water 
service. 

BLACKWELL 

Earnings : 

Cash   Eeceipts    $11,407.99 

Value  of  Service  to  City  (as  charged) 4,941.92       $16,349.91 


Operating  Outlays  (No  allowance  for  Depreciation) 7,740. 


Apparent  Profit  from  Operation $8,609.91 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 
Interest  on  Bonds 

($131,000—51/2%   and  6%) $7,660. 

Depreciation    (5%— $131,000)    6,550. 

Sinking  Fund  Payments 2,567.50       $16,777.50 


Actual    Deficit $8,167.59 

78 


CHEROKEE 
Earnings : 

Cash   Eeceipts    $7,800. 

Value  of  Service  to  City 5,325.          $13,125. 

Operating  Outlays  (No    allowance  Depreciation) 7,980. 

Apparent   Profit   from   Operation $5,145. 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 
Interest  on  Bonds 

($25,000   @    6%) $1,500. 

Depreciation     (5%— $25,000)     1,250. 

Sinking  Fund  Payments 437.50         $3,187.50 

Actual  Profit*    $1,957.50 

CLAREMORE 

Earnings : 

Cash    Eeceipts     $17,965.15 

Value  of  Service  to  City 9,701.24      $27,666.39 

Operating  Outlays   (No  allowance  for  Depreciation) 13,376.91 

Apparent   Profit   from   Operation $14,289.48 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 
Interest  on  Bonds 

($160,000   @   5%) $8,000. 

Depreciation     (5% — $160,000)     8,000. 

Sinking  Fund  Payments 2,400.  18,400. 

Actual   Deficit    $4,110.52 


This  showing  is  very  questionable.  The  bond  issue  of  $25,000  was 
applied  wholly  to  the  lighting  plant.  The  capital  investment  in  the 
water  plant  is  not  shown,  and  the  charges  based  thereon  therefore 
do  not  appear. 


79 


CLINTON 
Earnings : 

Cash  Eeceipts  $15,817.59 

Value  of  Service  to  City 3,225.  $19,042.59 

Operating  Outlays  (No  allowance  for  Depreciation) 15,605.36 

Apparent  Profit  from  Operation $3,437.23 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 
Interest  on  Bonds 

($40,000   @    6%) $2,400. 

Depreciation   (5%— $40,000)    ; . .    .2,000. 

Sinking  Fund  Payments 1,100.  $5,500. 

Actual  Deficit    $2,062.77 

CORPELL 

Earnings  : 

Cash   Eeceipts    $13,937.95 

Value  of  Service  to  City 3,055.00       $16,992.95 

Operating  Outlays  (No  allowance  for  Depreciation) 14,908.10 

Apparent   Profit  from   Operation $2,084.85 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($37,500  @  6%) $2,250.00 

Depreciation    (5%    of    $22,000,    cost    of    light 

plant)     1,100.00 

Sinking  Fund  Payments 1,031.25         $4,381.25 

Actual  Deficit    $2,296.40 

EDMOND 
Earnings : 

Cash   Eeceipts    $6,296.13 

Value  of  Service  to  City 2,200.00         $8,496.13 

Operating  Outlays  (No  allowance  for  Depreciation) 5,472.46 

Apparent  Profit  from  Operation $3,023.67 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest   on   Bonds    ($45,000    @    5%;    $55,000 

@  6%)    $5,550.00 

Depreciation   (5%  of  $100,000) 5,000.00 

Sinking  Fund  Payments 1,587.50       $12,137.50 

Actual  Deficit    $9,113.83 

80 


FAIRVIEW 
Earnings : 

Cash   Eeceipts    $11,030.59 

Value  of  Service  to  City 3,000.00      $14,030.59 

Operating  Outlays   (No  allowance  for  Depreciation) 10,956.64 

Apparent  Profit  from   Operation $3,073.95 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($145,700  @  6%) $8,742.00 

Depreciation    (5%    of    $145,700) 7,285.00 

Sinking  Fund  Payments 2,549.80         18,576.80 

Actual   Deficit    $15,502.95 

KINGFISHER 
Earnings : 

Cash   Eeceipts    $13,106.49 

Value  of  Service  to  City : 4,750.00       $17,856.49 

Operating  Outlays  (No  allowance  for  Depreciation) 13,098.49 

Apparent  Profit  from  Operation $4,758.00 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($94,000  @  6%) $5,640.00 

Depreciation   (5%   of  $94,000) 4,700.00 

Sinking  Fund  Payments 2,585.00         12,925.00 

Actual  Deficit $8,167.00 

MARLOW 
Earnings: 

Cash   Eeceipts    $6,634.68 

Value  of  Service  to  City  (as  charged) 603.15         $7,237.83 

Operating  Outlays  (No  allowance  for  Depreciation) 7,219.53 

Apparent  Profit   from   Operation $18.30 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest    on    Bonds    ($20,000    @    5%;    $18,000 

@  Q%)    $2,080.00 

Depreciation   (5%   of  $38,000) 1,900.00 

Sinking  Fund  Payments 1,015.00 

$4,995.00 
Less  waterworks  bonds  repurchased 303.69  4,691.31 

Actual   Deficit $4,673.01 

8l 


NEWKIRK 
Earnings : 

Cash  Eeceipts    $7,220.86 

Value  of  Service  to  City 3,000.00       $10,220.86 

Operating  Outlays  (No  allowance  for  Depreciation) 5,585.48 

Apparent  Profit  from  Operation $4,635.38 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest    on    Bonds    ($50,000    @    6%;    $30,000 

@  5%) $7,500.00 

Depreciation  (5%  of  $80,000) 4,000.00 

Sinking  Fund  Payments 1,975.00         13,475.00 

Actual  Deficit $8,839.62 

PAWHUSKA* 
Earnings  : 

Cash   Eeceipts    $16,626.70 

Value  of  Service  to  City 3,200.00       $19,826.70 

Operating  Outlays  estimated  (No  allowance  for  Depreciation. .  9,000.00 

Apparent  Profit  from  Operation $10,826.70 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($130,000  @  6%) $7,800.00 

Depreciation    (5%    of    $130,000) 6,500.00 

Sinking  Fund  Payments 1,875.00         16,175.00 

Actual  Deficit    $5,348.30 

PAWNEE 
Earnings : 

Cash  Keceipts  $16,402.26 

Value  of  Services  to  City 2,200.00       $18,602.26 

Operating  Outlays  (No  allowance  for  Depreciation) 15,099.66 

Apparent  Profit  from  Operation $3,502.60 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest    on    Bonds    ($20,000    (5)    6%;    $20,000 

@  5%%) $2,300.00 

Depreciation    (5%  of  $40,000) 2,000.00 

Sinking  Fund  Payments 650.00  4,950.00 

Actual  Deficit    .  $1,447.40 


*  Light,  Water  and  Gas. 


82 


PERRY 
Earnings: 

Cash  Eeceipts    .............................  $11,731.43 

Value  of  Service  to  City  (as  charged)  .........     5,064.00       $16,795.43 

Operating  Outlays  (No  allowance  for  Depreciation)  .........         16,150.71 

Apparent  Profit  from  Operation  ...................  $644.72 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($80,000  (5)  5%%)  ........   $4,400.00 

Depreciation   (5%  of  $80,000)  ...............     4,000.00 

Sinking  Fund  Payments  .....................     1,600.00         10,000.00 

Actual  Deficit    ..................................         $9,355.28 

PONCA  CITY 
Earnings  : 

Cash  Receipts    .............................  $15,341.53 

Value  of  Service  to  City  ....................     3,200.00      $18,541.53 

Operating  Outlays  (No  allowance  for  Depreciation)*  ........         20,204.92 

Deficit  from  operation.  .  .  .........................         $1,663.39 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($106,500  @  5%)  .........   $5,325.00 

Depreciation    (5%   of  $106,500)  ..............     5,325.00 

Sinking  Fund  Payments  .....................     3,195.00         13,845.00 

Actual  Deficit  ...................................       $15,508.39 

PURCELL 

Earnings  : 

Cash   Eeceipts    ...........  ...................  $11,709.95 

Value  of  Service  to  City  ....................     2,100.00 


Operating  Outlays  (No  allowance  for  Depreciation) 


Apparent  Profit  from  Operation  ................... 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($100,000  @  5%)  .........   $5,000.00 

Depreciation   (5%  of  $100,000)  .....  -.  ........     5,000.00 

Sinking  Fund  Payments  .....................     2,000.00 


Actual   Deficit 


$13,809.95 
10,432.49 
$3,377.46 


12,000.00 
$8,622.54 


*  Includes   salaries  of  employees,   aggregating   $5,220  per   year,   seemingly 
omitted  in  city's  account  of  expenditures. 


SALLISAW 

Earnings  : 

Cash  Eeceipts $16,650.00 

Value  of  Service  to  City 2,400.00       $19,050.00 

Operating  Outlays  (No  allowance  for  Depreciation) 16,973.00 

Apparent  Profit   from    Operation $2,077.00 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($102,500  @  6%) $6,150.00 

Depreciation    (5%   of  $102,500) 5,125.00 

Sinking  Fund  Payments 1,793.75         13,068.75 

Actual  Deficit    $10,991.75 

SAYRE 
Earnings  : 

Cash  Eeeeipts  $8,431.44 

Value  of  Service  to  City 3,000.00       $11,431.44 

Operating  Outlays  (No  allowance  for  Depreciation) 8,139.00 

Apparent  Profit  from   Operation $3,292.44 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($56,000  @  6%.) $3,360.00 

Depreciation   (5%  of  $56,000) 2,800.00 

Sinking  Fund  Payments 980.00  7,140.00 

Actual  Deficit    $3,847.56 

SNYDER* 
Earnings : 

Cash  Keceipts $4,839.77 

Value  of  Service  to  City 1,300.00         $6,139.77 

Operating  Outlays  (No  allowance  for  Depreciation) 7,610.53 

Deficit  from  operation $1,470.76 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($85,000  @  6%) $5,100.00 

Depreciation   (5%  of  $85,000) 4,250.00 

Sinking  Fund  Payments 2,337.50         11,687.50 

Actual  Deficit    $13,158.26 


First  lighting  plant  installed  in   1907   from   waterworks  fund;    scrapped 
four  years  later  and  new  plant  erected  from  bond  issue  of  $25,000. 

84 


STILLWATER 
Earnings  : 

Cash    Eeceipts    $23,224.69 

Value  of  Service  to  City 3,800.00       $27,024.69 

Operating  Outlays  estimated  (No  allowance  for  Depreciation)  .         11,600.00 
Apparent  Profit   from   Operation $15,424.69 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest    on    Bonds    ($35,000    @    6%;    $70,000 

@  5%)    $5,600.00 

Depreciation   (5%   of  $105,000) 5,2.50.00 

Sinking  Fund  Payments . 2,362.50         13,212.50 

Apparent  Profit $2,212.19 

TONKAWA 
Earnings : 

Cash  Eeceipts $3,604.00 

Value  of  Service  to  City 2,000.00        $5,604.00 

Operating  Outlays  (No  allowance  for  Depreciation) 6,522.33 

Deficit  from  Operation $918.33 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest   on   Bonds    ($35,000    @    6%;    $32,000 

@  5y2%) $3,860.00 

Depreciation  (5%  of  $67,000) 3,350.00 

Sinking  Fund  Payments 1,542.50  8,752.50 

Actual  Deficit $9,670.83 

WEATHERFORD* 
Earnings : 

Cash   Eeceipts    $18,446.97 

Value  of  Service  to  City 3,200.00      $21,646.97 

Operating  Outlays  (No  allowance  for  Depreciation) 15,377.70 

Apparent  Profit  from  Operation 6,269.27 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds  ($82,500  @  6%) $4,950.00 

Depreciation  (5%  of  $82,500) 4,125.00 

Sinking  Fund  Payments , 1,593.75        10,668.75 

Actual  Deficit    .  $4,399.48 


*  Water,  Light  and  Ice. 


WOODWARD 
Earnings : 

Cash  Eeceipts $24,506.94 

Value  of  Service  to  City 5,500.00       $30,006.94 

Operating  Outlays  (No  allowance  for  Depreciation) 18,600.00 

Apparent  Profit  from  Operation $11,406.94 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds   ($130,000  @  6%) $7,800.00 

Depreciation   (5%   of  $130,000) 6,500.00 

Sinking  Fund  Payments 2,275.00         16,575.00 

Actual  Deficit    $5,168.06 

WYNNEWOOD 
Earnings  : 

Cash   Eeceipts    $13,928.25* 

Value  of  Service  to  City 3,340.00       $17,268.25 

Operating  Outlays  (No  allowance  for  Depreciation) 12,382.79 

Apparent  Profit  from  Operation $4,885.46 

Outlays  from  Taxes  or  Other  Funds,  Incurred  for  Light  and 
Water,  but  Omitted  from  those  Accounts. 

Interest  on  Bonds   ($14,000  @   5%%;   $41,000 

@  5%%)    $2,820.00 

Depreciation   (5%  of  $55,000) 2,750.00 

Sinking  Fund  Payments 2,000.00  7,570.00 

Actual  Deficit    $2,684.54 


*  Includes  $1,213.25  taxes  collected  to  maintain  Fire  Department. 


86 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 
BERKELEY 

Return  to  desk  from  which  borrowed. 
This  book  is  DUE  on  the  last  date  stamped  below. 


JAN  28  1948 


LD  21-100m-9,'47(A5702sl6)476 


Y.C  83105 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


